Daily Price Outlook
Gold prices (XAU/USD) have been on the rise, showing a bullish trend around the 2,681 level and hitting an intra-day peak of 2,683.
This rally in gold can be largely attributed to the recent weakness in the US dollar, which lost momentum after disappointing US December Producer Price Index (PPI) data. As a result, the dollar weakened, and gold began to gain traction.
On the flip side, investor sentiment improved as US President-elect Donald Trump's economic team hinted at gradually increasing import tariffs, a move that has sparked optimism in riskier assets.
This shift in sentiment has somewhat dampened the demand for gold as a safe-haven investment, as investors feel more confident in taking on riskier positions.
Looking ahead, all eyes are now on the upcoming US Consumer Price Index (CPI) report. This will likely offer further insight into the Federal Reserve’s outlook on interest rates, and in turn, influence the demand for the US dollar.
The CPI report could play a pivotal role in shaping market sentiment and providing momentum for both the US dollar and gold prices, leaving traders keenly awaiting its release for clues on future market movements.
US Dollar Weakens Amid Disappointing Data and Fed's Gradual Rate Cut Outlook
On the US front, the broad-based US dollar, measured by the US Dollar Index (DXY), is currently trading around 109.20. The Greenback has faced some pressure due to disappointing US December Producer Price Index (PPI) data.
The PPI, which tracks changes in prices for goods and services, rose by 0.2% month-on-month in December, falling short of expectations.
On an annual basis, it increased by 3.3%, also below the anticipated 3.4%. This weaker-than-expected data put downward pressure on the dollar, benefiting gold.
In addition, US Nonfarm Payrolls (NFP) rose by 256K in December, well above expectations, which had been set at 160K.
This strong jobs report provided some support to the dollar earlier in the week. However, the overall market remains cautious ahead of the upcoming US Consumer Price Index (CPI) data.
The CPI report, due later this week, will offer further insight into inflation trends and could influence the Federal Reserve's policy decisions, including interest rates.
Meanwhile, Federal Reserve officials are preparing for a tighter pace of rate cuts in 2025 than initially anticipated.
Kansas Fed President Jeffrey Schmid emphasized that the Fed’s monetary policy is nearing its long-term equilibrium, suggesting any future rate cuts should be gradual and data-driven.
This approach is creating uncertainty in the market, leaving traders focused on inflation data to guide future expectations for the dollar and gold.
China's Efforts to Support Yuan and Boost Economic Growth May Impact Global Market Sentiment and Gold
Apart from this, the China Foreign Exchange Committee (CFXC) met in Beijing on Monday and pledged to support the Chinese Yuan. The meeting was guided by the People’s Bank of China (PBOC), showing the country’s efforts to stabilize its currency.
In a separate announcement, the PBOC and China’s FX regulator, the State Administration of Foreign Exchange (SAFE), revealed that they would increase the macro-prudential adjustment parameter for cross-border financing from 1.5 to 1.75. This change, effective January 13, 2025, is designed to manage capital flows and support the yuan.
PBOC Governor Pan Gongsheng also spoke on Monday, highlighting that the central bank will use tools like interest rate adjustments and reserve requirement ratios (RRR) to maintain adequate liquidity in the financial system. This is part of China's broader strategy to keep the economy stable and manage inflation.
Moreover, Governor Gongsheng reaffirmed China’s plans to increase its fiscal deficit, indicating more government spending in the future. He also emphasized that China will continue playing a key role in driving global economic growth.
This support for the yuan and China’s economic policies could have an indirect impact on gold, as traders monitor how these developments affect global market sentiment and the demand for safe-haven assets like gold.
GOLD (XAU/USD) – Technical Analysis
Gold (XAU/USD) is trading at $2,684.31, up 0.18%, reflecting continued bullish momentum within a well-defined ascending channel on the 4-hour chart. The price has breached the critical pivot point at $2,676.98, now acting as strong support.
Immediate resistance is seen at $2,696.72, followed by $2,710.98. A sustained breakout above these levels could push gold prices toward the channel's upper boundary at $2,724.66.
On the downside, immediate support is positioned at $2,664.75, with further declines potentially testing $2,645.00 and $2,627.99. The 50-day EMA, currently at $2,661.06, reinforces short-term support, while the broader bullish outlook is underscored by the 200-day EMA at $2,663.98.
Technically, the breakout above $2,676 confirms buyer strength, with a bullish engulfing candle further validating this sentiment. The upward channel suggests room for continuation if resistance levels are decisively breached.
Traders should monitor price action near $2,696, as failure to hold above $2,676 could signal corrective moves toward lower support zones.
The calculated entry point above $2,676 aligns with a favorable risk-to-reward ratio of 1:1.8. This setup targets a profit of $2,400 per standard lot, while limiting downside exposure to $1,300. Such conditions make gold an attractive asset for short-term bullish strategies.
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