• Stocks News
• January 10, 2025

CPI and Federal Reserve Expectations as Key Variables

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Gold has long been regarded as a safe haven asset, a reliable store of value amidst the chaos of financial marketsRecently, however, the market has witnessed a remarkable volatility in gold prices, reflecting a confluence of assorted factors that investors must navigateAmong these, concerns surrounding inflation, looming shifts in Federal Reserve policies, and geopolitical tensions have emerged as critical players in determining gold's future trajectory.

Take, for instance, a dramatic day in early December, where gold prices soared to a peak of $2,704.22 per ounceThis spike, marking a two-week high, was not without its challenges, as it was soon followed by a significant retreatBy the afternoon, prices dived, hitting a low of approximately $2,675.70 before settling around $2,692. Such abrupt price swings illustrate the ongoing tug-of-war between bullish and bearish market sentiments.

On the fundamental side, the atmospheric complexity surrounding gold pricing is undeniable

Yearning geopolitical unrest acts as a volatile backdrop, demanding investor attention and often causing surges in gold pricesConcurrently, while central banks around the globe eye potential interest rate cuts as part of their monetary policy strategies, the reality is that such measures bear more of a mid to long-term impactIndeed, the news regarding the People's Bank of China amassing gold reserves has lost its novelty and its immediate influence on gold values appears muted.

What is capturing market attention, nevertheless, is the highly anticipated release of the U.SConsumer Price Index (CPI) data for November and the associated implications for Federal Reserve policyExpectations run high among economists, who predict a 0.3% increase in both the overall and core consumer prices, constituting a yearly rate of 3.3% overall, but potentially seeing core inflation rise from October’s 2.6% to 2.7%. Such predictions could fuel fears that the Federal Reserve may not be positioned to act as rapidly as desired in terms of interest rate cuts, consequently favoring the U.S

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• CPI and Federal Reserve Expectations as Key Variables

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The U.Sdollar index, having found support near the crucial level of 105.41, has seen a notable uptick over three consecutive trading days, signaling a bullish trend that could place further pressure on gold prices if the dollar continues to gain momentumMeanwhile, the yield on the 10-year U.STreasury notes has also shown an upward trend, closing above the 200-day moving average at 4.206%, reinforcing the potential downward pressure on gold prices due to macroeconomic factors.

Despite market consensus anticipating a Federal Reserve rate cut in December—with futures signaling an 85% likelihood of a 25 basis point reduction—many analysts caution that this might be a hawkish move, with expectations that the Fed could pause further reductions as 2024 unfoldsA survey conducted by Reuters after the labor data release revealed a division among economists: while the majority forecasts a 25 basis point cut in December, a notable faction contemplates the possibility of the Fed holding rates steady

In observing the January meeting, nearly 60% foresee no moves, with a significant downward shift in the forecast for the number of rate cuts throughout the upcoming yearThis flickering uncertainty looms over the gold market, engendering a distinctly bearish sentiment.

From a technical analysis perspective, the daily charts reveal a distinctively volatile patternAfter breaching the resistance zone between $2,605 and $2,666, gold shooting up to $2,704 was remarkable but precariousIndicators such as the MACD and KDJ confirm bullish patterns, maintaining the possibility for further upside movement towards the November high around $2,721. Should gold break this resistance, it might set a new course toward historical highsHowever, caution is warranted; below the 55-day moving average around $2,668, bullish signals will diminish, necessitating attention to additional support levels at approximately $2,662.20, $2,653.09, and $2,638.12.

Delving deeper into the four-hour charts also presents a near-identical story of upward fluctuations

Following the breakout from the same critical range, gold exhibits challenges near $2,704, potentially forming a bearish "engulfing" pattern which suggests a downturn is looming; KDJ indicators are indicating a preliminary death cross, amplifying the risks of falling pricesInitial support will sit close to $2,676.31, with the 200-period average providing further cushion at around $2,668.08. Falling below these thresholds could signal additional bearish pressuresNevertheless, as long as prices stay above the midpoint of the Bollinger Bands, bulls may still gain traction to chase further upside, with key resistance needing to conquer around the previous high of $2,721.21 to unlock further movements upward.

In conclusion, the current landscape of physical gold is marked by an intricate blend of bullish and bearish influencesThe release of U.SCPI data and the subsequent unveiling of Federal Reserve policy intentions will undoubtedly serve as pivotal forces in breaking this stalemate in market sentiment