Gold futures have recently experienced a decline of 0.51%, equivalent to a decrease of $10.40. Interestingly, this decline is larger in percentage terms compared to the gains witnessed in the dollar. It is crucial to understand the inverse correlation between the strength or weakness of the dollar and the rise or fall of gold prices. Given that the dollar has gained 0.34% while gold futures are down 0.51%, we can infer that approximately 60% of the loss in gold can be attributed to dollar strength. The remaining 40%, on the other hand, can be directly linked to selling pressure from investors.
The Federal Reserve has recently announced significant changes to its monetary policy. Their previous policy consisted of aggressive rate hikes and a decrease in their asset balance sheet. However, there has been a shift as the Fed has signaled an end to this restrictive policy and has revealed plans to begin cutting interest rates next year. The key questions that arise from this announcement are when the first rate hike will occur and the depth of the rate cuts next year.
Federal Reserve members have emphasized that future monetary policy decisions will be flexible and dependent on the most recent economic and inflation data. Chairman Powell has mentioned that, based on the median votes represented in the “dot plot,” it is expected that the Federal Reserve will implement three 1/4% cuts, which would ultimately result in a total 75 basis point reduction. Consequently, investors will be closely watching the upcoming PCE index report on Friday, as it will heavily influence the aggressiveness of the rate cuts next year.
The Personal Consumption Expenditures (PCE) index is of significant importance to investors as it indicates the level of inflation in the economy. Predictions for the upcoming PCE index suggest a decline in inflation rates. The core PCE price index is projected to decrease from 3.5% in October to 3.3% last month. Similarly, the headline PCE is expected to reveal a decline from 3% in October to 2.8% last month. The outcome of the PCE index report will play a crucial role in determining the future rate cuts by the Federal Reserve.
In addition to the impact of dollar strength and economic data, geopolitical concerns surrounding the Middle East conflict are highly likely to support gold prices. These concerns create a sense of uncertainty and often lead investors to seek safe-haven assets like gold. Consequently, it is anticipated that gold prices will remain above $2000 per ounce.
From a technical perspective, there is minor support for gold futures at the $2028 to $2030 range. This support is based on the current 21-day exponential moving average, which is fixed at $2028.60, as well as the lows observed on the previous Friday and Monday. However, major support for gold futures remains at $2000 per ounce.
The decline in gold prices can be primarily attributed to the strength of the dollar, accounting for about 60% of the decline. The remaining 40% is a result of selling pressure from investors. Additionally, the Federal Reserve’s announcement of rate cuts next year has sparked interest in the upcoming PCE index report, which will heavily influence the extent of these cuts. Moreover, geopolitical concerns surrounding the Middle East conflict are expected to support gold prices. Lastly, technical analysis indicates support levels at $2028 to $2030 and a major support level at $2000 per ounce for gold futures.