Gold Stalls on Inflation Data (12.12.2024)

Gold paused after a three-day rally as investors analyzed US inflation data, which showed headline inflation rose as expected and core inflation remained steady.

Concerns about persistent inflation next year remained, while major central banks, including the Bank of Canada, are expected to continue easing policies. The People's Bank of China resumed gold purchases after a six-month hiatus, signaling a more accommodative monetary policy. The EUR/USD pair rose, and the dollar index stayed steady, supported by a dovish Eurozone outlook and weakness in the euro and yuan.

Dollar Maintains Strength with Inflation Report

The EUR/USD pair started Thursday with an increase and reached the 1.05 level again. The dollar index remained around 106.5 on Thursday after rising for four consecutive days, despite the latest US consumer inflation data strengthening expectations for a Federal Reserve interest rate cut next week.

The CPI report revealed that the headline and core inflation rates in November met forecasts, clearing the path for the Fed to continue with rate cuts. Markets are now pricing in nearly a 100% chance that the Fed will implement another 25 basis point reduction next week. Producer inflation data is also going to be revealed on Thursday for additional insight. Meanwhile, the dollar gained support from recent weakness in the euro and yuan, driven by a dovish monetary policy outlook in the Eurozone.

For the pair, the first resistance level will be 1.0600. In the case of a breach, the next levels to watch would be 1.0660 and 1.0720. On the downside, 1.0500 will be the first support level. 1.0450 and 1.0400 are the next levels to monitor if the first support level is breached.

Yen Declines, Business Data Awaited

The Japanese yen traded around 152.3 per dollar, following a three-day decline, as uncertainty over the timing of potential interest rate hikes by the Bank of Japan continued to impact the currency. Market expectations for a December rate hike were reduced after reports suggested that the BOJ sees "little cost" in delaying its decision. Some BOJ officials have left the possibility of a rate increase next week open, depending on economic data and market conditions. Meanwhile, some central bank members appear less concerned about the risk of a weak yen fueling inflation. Friday’s Japanese business sentiment data is expected to provide further insights into the country's economic prospects. Externally, the yen also faced pressure from a strong US dollar, even as recent US inflation data bolstered expectations of a Federal Reserve rate cut next week.

The key resistance level appears to be 152.80, with a break above it potentially targeting 153.65 and 154.75. On the downside, 151.00 is the first major support, followed by 149.40 and 148.70 if the price moves lower.

Gold Pulls Back After Three-Day Rally

Gold dipped to $2,700 per ounce, pausing after a three-day rally as investors continued to analyze the latest US inflation data. The November report showed that headline inflation rose as expected, while core inflation remained steady. This led traders to increase their expectations for another Federal Reserve interest rate cut next week, with Fed funds futures suggesting a 98% probability of a 25 basis point reduction. Such a move typically supports gold by lowering the opportunity cost of holding non-yielding assets. However, concerns about ongoing inflation in the coming year persisted as other key inflation indicators remained high.

Major central banks also supported gold, including the Bank of Canada, with expectations that the European Central Bank and Swiss National Bank will continue their easing policies. Additionally, the People's Bank of China resumed gold purchases after a six-month hiatus and committed to a more accommodative monetary policy next year.

Technically, the first resistance level will be 2725, followed by 2750 and 2790. On the downside, 2700 will be the first support level. 2660 and 2630 are the next levels to monitor if the first support level is breached.

Pound Increases Before December Cuts 

The British pound rose to $1.276, approaching a four-week high before important economic data and central bank meetings. UK data, set to be released next Friday, is expected to show an economic rebound and a recovery in manufacturing for October. The Bank of England is mostly expected to keep interest rates unchanged at its meeting on December 19. In the US, markets are preparing for inflation data and have largely factored in a 0.25% rate cut by the Federal Reserve next week. Investors are also focused on the European Central Bank's meeting on Thursday, where a similar 0.25% rate cut is expected, bringing the ECB's deposit rate down to 3%.

The first resistance level for the pair will be 1.2815. In case of this level's breach, the next levels to watch would be 1.2960 and 1.3060. On the downside 1.2720 will be the first support level. 1.2615 and 1.2550 are the next levels to monitor if the first support level is breached.

Silver Prices Fall on Chinese Demand Concerns

Silver prices continued to decline, hovering around $32 per ounce while gold prices rose as uncertainty over Chinese industrial demand countered expectations of a Fed rate cut. The Chinese government is reportedly open to devaluing the yuan in response to US tariff threats, aligning with its commitment to easing monetary policy, which would make Chinese exports more affordable abroad. Meanwhile, doubts over whether China's promised economic support will boost industrial demand weighed on prices. Additionally, overcapacity in China's solar panel sector led photovoltaic companies to join a government self-discipline program to regulate supply, which could limit silver input demand. On the monetary policy front, steady US inflation data reinforced expectations that the Fed will cut interest rates by 25bps this month, lowering the opportunity cost of holding bullion.

For silver, the first resistance level will be 32.30. In the case of this level’s breach, the next levels to watch would be 33.00 and 33.90. On the downside 31.40 will be the first support level. 30.70 and 30.20 are the next levels to monitor if the first support level is breached.