Gold Prices Surge Despite US Dollar’s Minor Increase Due to Mixed PMI Numbers
Investors are expecting the Federal Reserve’s interest rate decision and economic forecast tomorrow, with a 25 basis point rate cut expected on Wednesday. Speculation surrounds what the Fed will do regarding monetary policy going forward, especially with inflationary pressure from Trump-era policies.
Gold prices have risen slightly in the North American session at the start of the week, 0.28% higher, ahead of the Federal Open Market Committee (FOMC) decision. As of now, XAU/USD is trading at $2,643, higher than its opening price but below the highs of the day.
US Economic Docket Light with Mixed PMI Data
The US economic docket remains light, with the release of the S&P Global Flash PMIs for December. Business activity in the manufacturing sector weakened after improving last month, while the services sector printed its highest reading in 2024. This mixed data lifted the US Dollar, with the US Dollar Index (DXY) rising 0.07% to 107.01. Meanwhile, gold prices dipped from their daily highs of $2,664.
The Federal Reserve’s meeting is scheduled for December 17-18, with expectations for a 25 basis point rate cut. Traders are looking for the Summary of Economic Projections (SEP) for insights into the path of interest rates in 2025.
Market Speculation on Future Fed Policies Amid Inflation Concerns
Lower interest rates generally support gold, which does not yield any interest. However, there is increasing speculation that the Fed may take a dovish stance due to the inflationary fiscal policies associated with the emerging Trump administration.
Gold prices tend to rise in lower-rate environments and with greater geopolitical risk, both of which have diminished recently.
Daily Digest: Gold Price Holds Strong at $2,650
Gold prices dropped slightly as US real yields fell two basis points to 2.049%, a factor that supported the precious metal. US 10-year Treasury yields also dropped by 2.5 basis points to 4.375%. Despite this, the US Dollar Index remained strong at 107.05.
S&P Global Manufacturing PMI for December fell from 49.7 to 48.3, missing the expected 49.8. However, the Services PMI increased from 56.1 to 58.5, surpassing the expected 55.7.
The CME FedWatch Tool indicates a 96% chance of a 25 basis point rate cut on Wednesday, and investors are betting the Fed will reduce rates by 100 basis points in 2025.
Goldman Sachs analysts also noted that China’s central bank may increase gold demand during periods of local currency weakness to boost confidence in their currency.
Technical Outlook: Gold Price Retreats, Sellers Eye 100-Day SMA
The gold price uptrend remains intact, but it trades below last week’s lows and beneath the 50-day Simple Moving Average (SMA) of $2,670. The Relative Strength Index has breached below its neutral line, indicating that sellers are in control.
If gold prices fall below $2,650, the next support is expected at $2,600, the 100-day SMA. A further decline would bring support at the August 20 peak of $2,531. However, if XAU/USD can move past $2,650, the next resistance is at $2,670, followed by $2,700.
