Gold hovers near $4,100 as US inflation and Fed speeches take centre stage

Gold starts the week with gains as the US Dollar pares its post-NFP advance.
Expectations for December’s rate decision could change as US inflation figures and Fed speeches come into focus.
Bullish momentum strengthens in XAU/USD, while immediate support comes from the 21-day SMA.

Gold (XAU/USD) is trading higher at the start of the week, supported by a retreat in the US Dollar (USD) following its gains on Friday’s strong US jobs report. A clear break above $4,100 nevertheless remains elusive as markets look ahead to this week’s US inflation releases. Having touched an intraday high of $4,134, XAU/USD is trading near $4,102 at the time of writing, a gain of 0.90% for the day.

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

After hitting a high of 102.36 on Friday, the US Dollar Index (DXY) is trading near 101.84. The index measures the Greenback’s performance against a basket of six major currencies.

October’s US Nonfarm Payrolls (NFP) increased by 165K, exceeding the 65K forecast 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 showing resilience, the figures suggest that the Federal Reserve (Fed) has scope to increase interest rates further to return inflation to its 2% target. Meanwhile, higher energy costs stemming from the Middle East conflict keep inflation risks skewed to the upside.

Oil has, however, retreated from recent highs. 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 meeting between Trump and Qatar’s prime minister is also expected at the White House on Monday. Qatar has been acting as a mediator in indirect discussions between Washington and Tehran.

Markets will receive the US Consumer Price Index (CPI) on Tuesday and the Producer Price Index (PPI) on Friday, with either release capable of reshaping expectations for the Fed’s last policy decision of the year. According to the CME FedWatch Tool, traders assign an 80% probability to a rate increase in December.

The Federal Reserve’s September projections had already signalled a clear preference for additional tightening, according to analysts at Commerzbank Research. They highlight 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.” In their view, subsequent economic data, including robust October payrolls and persistently elevated inflation, are “unlikely to have changed that assessment materially.”

Gold continues to face pressure from the hawkish Fed outlook because higher interest rates increase the opportunity cost of owning the non-yielding metal. Besides the inflation releases, a packed schedule of Fed speeches this week will draw traders’ attention as they seek indications of policymakers’ thinking before the December meeting.

Gold: Frequently Asked Questions

What makes Gold attractive to investors?

Widely used both to preserve value and as a means of exchange, Gold has held an important place throughout human history. Beyond its lustre and use in jewellery, the precious metal is now commonly regarded as a safe-haven asset, making it a favoured investment in periods of uncertainty. Its lack of dependence on any particular issuer or government also underpins Gold’s widespread appeal as a hedge against inflation and currency depreciation.

Which buyers hold the largest Gold reserves?

The largest holders of Gold are central banks. To support their currencies during unsettled periods, they generally diversify their reserves and purchase Gold, bolstering perceptions of economic and currency strength. Substantial Gold holdings can help build confidence in a country’s solvency. World Gold Council data show that central banks increased their reserves by 1,136 tonnes of Gold, valued at around $70 billion, in 2022. No other year has recorded a larger purchase since records began. Emerging-economy central banks, including those in China, India and Turkey, are expanding their Gold reserves rapidly.

How does Gold move relative to other assets?

An inverse correlation links Gold with the US Dollar and US Treasuries, both of which serve as major reserve and safe-haven assets. A weakening Dollar typically supports Gold, helping investors and central banks diversify their holdings during periods of uncertainty. Risk assets also tend to move in the opposite direction to Gold: rising equity markets generally weigh on its price, whereas selling pressure in riskier markets usually benefits the precious metal.

Which factors drive Gold prices?

A variety of influences can shift Gold prices. Its safe-haven appeal means geopolitical turmoil or concerns about a severe recession can send prices sharply higher. Lower interest rates generally support Gold because it pays no yield, while a higher cost of borrowing typically puts pressure on the metal. However, since Gold is quoted in dollars (XAU/USD), the behaviour of the US Dollar (USD) drives most price movements. Dollar strength usually restrains Gold prices, while a softer Dollar is likely to lift them.