Prices were mixed Thursday with gold consolidating, posting modest loss on the day. Most of the trading day was marked by position squaring ahead of Wednesday’s new US inflation data. Commodity Corner Gold (XAU/USD) has been stuck in a range, producing little excitement. The market continues to refuse prices close to our key $4,350 level. With most of the inflation-fighting moves already priced in, traders in new-to-market securities are hopeful but not wholly trusting.
The biggest thing to watch in the housing market is how inflation data might impact interest rates moving forward. Economists expect a further acceleration in the headline Consumer Price Index (CPI). Lastly, inflation is likely to increase to 3.1% y-o-y, from 3.0% in September. Core CPI, which strips out the oft-volatile food and energy components, is expected to hold steady at 3.0% y/y.
Current Market Dynamics
Gold (XAU/USD) is trading at ~$4,325 as of this writing. It collides with a well-known trading range that has capped or defined price movement since early in the week. This positioning reflects a major transformation in the gold market.
Technical indicators
The 50-day Simple Moving Average (SMA) has shot over the top of the 100-day SMA. Both moving averages are positively sloped further confirming that there’s a bullish bias in this market.
Today, the 50-day SMA is located at $4,141.31, becoming one of the most crucial dynamic supports that traders are looking at. A further hold above this average on a sustained basis would certainly strengthen bullish sentiment and maintain the upside path for buyers. If the price fails to hold above this level, it can expose the 100-day SMA at $3,860.49. This area could act as the new support area going forward.
The Relative Strength Index (RSI) for Gold has eased slightly to 69 from 72, suggesting that while upside momentum is cooling, it still remains robust. Powerful electric vehicle events await YOU. Trend strength is increasing as the Average Directional Index (ADX) has soared to 26.49, corroborating a directional market.
Central Banks and Gold Reserves
In one of the most bullish shifts for the gold market, central banks increased their gold reserves by 1,136 tonnes last year. This gold, worth an estimated $70 billion, is a testimony to the robust demand, as per World Gold Council data. This figure, if finalized, would break a historical record and constitute the largest annual gold purchase on record. It points to a remarkable flowering of transparency among central banks—most notably in emerging economies such as China, India, and Turkey.
There’s a reason these countries are quickly adding to their gold reserves as a key aspect of their monetary plan. Central banks are accumulating gold at a record rate, which reinforces gold’s safe-haven appeal during times of economic turmoil. Geopolitical tensions and inflationary pressures continue to mount, both domestically and around the globe. Thus, central banks will continue to maintain or even increase their gold reserves going forward.
Looking Ahead
With traders waiting on the next CPI print, dip-buying interest keeps coming in below that $4,250 figure. This buying pressure supports Gold’s ability to maintain its bigger picture bullish structure and reflects confidence from investors in the backdrop of recent volatility. Some analysts note that a pullback in gold prices would likely stop at this increasingly dynamic support level.
The US Dollar Index (DXY) trades around 98.50 after recovering from a slide under 98.00 on Tuesday. This was its lowest close since October 3. The key dynamic between currency moves and gold prices The upcoming inflation figures will most certainly set the tone not only for the dollar’s upcoming path but for gold’s as well in the days ahead.
“I’ll soon announce our next chairman of the Federal Reserve, someone who believes in lower interest rates, by a lot.” – Donald Trump
Market participants are constantly looking for signals that monetary policy is changing. Most notably, they are interested in how these announcements will affect interest rates and inflation expectations.