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Gold languishes near two-month low on bullish USD, elevated US bond yields

  • Gold price remains under heavy selling pressure amid the continuation of the Trump trade.
  • The optimism over stronger US economic growth lifts the USD to a fresh YTD top on Thursday.
  • Rising US bond yields also contribute to driving flows away from the non-yielding yellow metal.

Gold price (XAU/USD) continues losing ground for the fifth consecutive day and drops to its lowest level since September 19, around the $2,559-2,558 region as the US Dollar (USD) buying remains unabated through the Asian session on Thursday. Hopes that US President-elect Donald Trump’s policies will spur growth and stimulate inflation, and force the Federal Reserve (Fed) to pause its easing cycle remain supportive of elevated US Treasury bond yields. This, in turn, lifts the USD to its highest level since November 2023 and continues to weigh heavily on the commodity. 

Furthermore, the US Consumer Price Index (CPI) report released on Wednesday pointed to a slower progress toward bringing inflation down, which could result in fewer rate cuts next year. This, along with the recent strong bullish run in the US equity markets, contributes to driving flows away from the non-yielding Gold price and supports prospects for a further downward momentum. Traders now look forward to the release of the US Producer Price Index (PPI) for short-term opportunities, though the focus will remain glued to Fed Chair Jerome Powell’s speech later during the US session. 

Gold price selling bias remains unabated amid broad-based USD strength and rising US bond yields

  • The US Bureau of Labor Statistics reported on Wednesday that the headline US Consumer Price Index (CPI) rose 0.2% in October and by 2.6% over the last twelve months.
  • The core gauge – which excludes the more volatile food and energy categories—increased by 0.3% last month and by 3.3% as compared to the same time period last year. 
  • The data reaffirmed market bets that the US Federal Reserve would deliver a third interest rate cut in December against the backdrop of a softening labor market.
  • According to CME Group’s FedWatch Tool, the probability of another 25-basis-points rate cut at the next FOMC meeting shot to over 80% from less than 60% on Tuesday. 
  • Commenting on the report, Dallas President Lorie Logan said that the central bank has made a great deal of progress bringing down inflation, but should proceed cautiously.
  • St. Louis Fed President Alberto Musalem noted that the risk of inflation moving higher has risen and that sticky inflation makes it difficult for the central bank to continue to ease rates. 
  • Kansas Fed President Jeffrey Schmid made a rare appearance and said it remains to be seen how much more the US central bank will cut rates, and where they may settle.
  • US President-elect Donald Trump’s pledges of tax cuts and increased tariffs on imports could accelerate inflation, limiting the scope for the Fed to cut rates going forward.
  • The Trump trade optimism keeps the yield on the 10-year US government bond elevated near a multi-month top and lifts the US Dollar to the highest level since November 2023.
  • Thursday’s US economic docket features the release of the usual Weekly Initial Jobless Claims and the Producer Price Index, ahead of Fed Chair Jerome Powell’s appearance. 

Gold price bears could aim to challenge the 100-day SMA/50% Fibo. level confluence support 

From a technical perspective, the overnight breakdown below the $2,600 mark, which coincided with the 38.2% Fibonacci retracement level of the June-October rally, was seen as a fresh trigger for bearish traders. This, along with negative oscillators on the daily chart, suggests that the path of least resistance for the Gold price remains to the downside and supports prospects for a fall towards the $2,542-2,538 confluence support. The said area comprises the 100-day Simple Moving Average (SMA) and the 50% Fibo. level, which if broken will set the stage for an extension of the recent sharp pullback from the all-time peak and expose the $2,500 psychological mark.

On the flip side, attempted recovery moves might now confront resistance near the Asian session high, around the $2,580 area, ahead of the $2,600 round figure. A sustained strength beyond the latter might prompt a short-covering rally towards the $2,630-2,632 static barrier, which if cleared should pave the way for a move towards the next relevant hurdle near the $2,660 region.

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