By Thursday’s close, gold prices continued their bearish sentiment, moving under $4,324.56 within a fluctuating market climate. This decline comes as investors await critical inflation data from the United States, which may significantly influence future Federal Reserve monetary policy. Gold is still managing to stay above the up-trending 20-day Exponential Moving Average (EMA) at $4,230.13. This is indicative of a strong underlying trend going forward, despite the recent decline.
As of writing during the European trading session, gold prices were off 0.4%, edging closer to $4,320. This decrease comes as gold continues to stay near its all-time high of $4,381, indicating a strong underlying market sentiment. Analysts note that central banks from emerging economies, including China, India, and Turkey, have been rapidly increasing their gold reserves, contributing to the ongoing demand for the precious metal.
Central Banks and Record Purchases
Last year, central banks around the world net purchased 1,136 tonnes of gold, worth nearly $70 billion. This amount adds up to the largest annual gold buy in history. It shines a spotlight on the increasing perception of gold as a strategic asset — in particular during periods of global economic turmoil. Similar to their reserve-accumulating counterparts, these nations are part of a broader global movement to diversify assets away from traditional fiat currencies.
This ongoing buy-in from central banks has continued to provide support for gold, despite the current strengthening of the USD. Specifically, on Thursday, the US Dollar Index (DXY) gained 0.15%. It climbed as high as 98.55 since it gauged the dollar’s worth versus six of its main rivals. So when the dollar is on the rise, we typically see gold prices coming under pressure. A rising dollar, for example, increases the cost of gold for bearers of other currencies.
Market Sentiment and Technical Indicators
Gold’s recent uptick is due to technicals suggesting a high momentum, cooling down. The 14-day Relative Strength Index (RSI) is currently at 68.96, right under the overbought level of 70. The RSI has eased from a high of 72.44, suggesting that while gold retains robust momentum, it may experience shallow dips before continuing its upward trajectory.
Market participants are watching inflation data due to be released by the US government. Economists look for the consumer prices advance to pick up to 3.1% y/y in November from 3% in October. The year-over-year Consumer Price Index (CPI) excluding food and energy is expected to be unchanged at 3%. These inflation numbers will almost assuredly set the tone for market expectations of the Federal Reserve’s monetary policy. This, as a consequence, will affect gold prices in the short term.