Near $4,100: Gold trading focus shifts to US inflation and Fed speeches

Gold starts the week with gains as the US Dollar pares its post-NFP advance.
December rate expectations could change as markets assess US inflation figures and Fed commentary.
The 21-day SMA provides immediate support as bullish momentum strengthens in XAU/USD.

$4,102 is the level at which Gold (XAU/USD) trades at the time of writing. The metal is up 0.90% on the day, having touched an intraday peak of $4,134. Its positive start to the week comes as the US Dollar (USD) surrenders part of the advance driven by Friday’s strong US employment report. A convincing break above $4,100 nevertheless remains elusive, with markets now focused on this week’s US inflation figures.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

At around 101.84, the US Dollar Index (DXY) has retreated from Friday’s peak of 102.36. The index measures the Greenback against a basket of six major currencies.

October US Nonfarm Payrolls (NFP) increased by 165K, exceeding the 65K estimate by more than double. September’s increase was also revised higher, from 29K to 60K, while the Unemployment Rate declined from 4.2% to 4.1%.

With the labour market proving resilient, the Federal Reserve (Fed) has scope to lift interest rates further to return inflation to its 2% target. Meanwhile, the rise in energy costs associated with the Middle East conflict keeps inflation risks skewed upwards.

Oil has nonetheless retreated from recent peaks. Democrats’ victory in the US midterm elections fuelled hopes that Congress would push President Donald Trump to bring the war with Iran to an end. In an interview broadcast by CBS News on Sunday, Trump said there was “no reason” to intensify the conflict. A Monday meeting with Qatar’s prime minister at the White House is also expected. Qatar has acted as an intermediary in indirect negotiations between Washington and Tehran.

An 80% probability of a December rate hike is priced in by traders, according to the CME FedWatch Tool. Tuesday’s US Consumer Price Index (CPI) release and Friday’s Producer Price Index (PPI) report could both reshape expectations for the Fed’s last policy decision of the year.

Commerzbank Research analysts highlight the clear bias towards additional tightening in the Federal Reserve’s September projections. They note that “of the 18 Fed officials who submitted projections for the appropriate path of interest rates in September, 16 anticipated at least one more rate hike this year.” Subsequent economic data, including robust October payrolls and persistently high inflation, are “unlikely to have changed that assessment materially.”

Gold continues to face pressure from the hawkish Fed outlook: higher interest rates increase the opportunity cost of owning the non-yielding metal. Beyond the inflation releases, a packed schedule of Fed speeches this week will give traders further indications of policymakers’ views before the December meeting.

Gold: Key Questions

What attracts investors to Gold?

Widely used as both a store of value and a medium of exchange, Gold has held an important place throughout human history. Beyond its lustre and use in jewellery, the precious metal is now broadly regarded as a safe-haven asset, making it a favoured investment in periods of turmoil. Because it is not dependent on a particular issuer or government, Gold is also widely considered a hedge against inflation and currency depreciation.

Which buyers hold the most Gold?

Central banks hold more Gold than any other group. To underpin their currencies during unsettled periods, they typically diversify reserves and purchase Gold, reinforcing perceptions of economic and currency strength. Substantial Gold reserves can bolster confidence in a country’s solvency. World Gold Council data show that central banks increased their reserves by 1,136 tonnes in 2022, worth approximately $70 billion. That was the largest annual purchase on record. Emerging-market central banks, including those of China, India and Turkey, are rapidly expanding their Gold holdings.

How does Gold move relative to other assets?

The US Dollar and US Treasuries, both leading reserve and safe-haven assets, have an inverse relationship with Gold. A weaker Dollar typically supports Gold, helping investors and central banks diversify their holdings during turbulent periods. Risk assets also tend to move in the opposite direction to Gold. Stock-market gains usually put pressure on the metal’s price, whereas selling in riskier markets generally supports it.

Which factors drive Gold prices?

A broad range of influences can affect Gold prices. Its safe-haven appeal means geopolitical turmoil or concerns over a severe recession can trigger a rapid increase. Since Gold offers no yield, lower interest rates generally support it, while higher borrowing costs usually weigh on the metal. The US Dollar (USD) nevertheless drives most price movements because Gold is denominated in dollars (XAU/USD). Dollar strength tends to restrain Gold prices; a weaker Dollar, by contrast, is likely to lift them.