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ECB's de Guindos: Will be in a better position to reassess inflation outlook in DecemberECB's de Guindos: Will be in a better position to reassess inflation outlook in December

Gold’s Short-Term Outlook Amid Interest Rate Speculations

Gold (XAU/USD) is currently trading in a challenging landscape, marked by its recent slump to a three-week low. This downturn coincides with a resilient U.S. dollar and the anticipation of key U.S. inflation (CPI) data, which traders are closely monitoring to gauge the Federal Reserve’s next move on interest rates.

At 07:25 GMT, Gold (XAU/USD) is trading $1938.96, up $0.575 or +0.03%. December Comex Gold futures are at $1942.80, up $5.10 or +0.26%.

Inflation Data and the Dollar’s Impact

Last week’s significant 2.8% drop in gold prices, the steepest in over a month, was primarily influenced by Fed Chair Jerome Powell’s hawkish remarks, which dampened hopes for interest rate cuts. The upcoming U.S. consumer price index (CPI) data, expected to show continued inflationary pressures, plays a critical role in this narrative. A strong dollar, further bolstered by expectations of persistent inflation, has diminished gold’s appeal for investors holding other currencies.

Economic Indicators and Gold’s Response

As investors await the CPI release, attention is also turning to U.S. retail sales data, which will provide insights into consumer demand amid high borrowing costs. These economic indicators are crucial in shaping market expectations regarding the Fed’s ongoing battle against inflation and the subsequent impact on gold prices.

Short-Term Forecast: A Balancing Act

In the short term, gold’s direction seems to be hanging in the balance, influenced by the interplay of inflation data, the strength of the U.S. dollar, and economic growth indicators. While geopolitical risks and central bank purchases offer some support, the Fed’s monetary policy tightening cycle and the dollar’s direction are key factors to watch.

Gold’s Prospects in a Shifting Macro Environment

Looking ahead, the macroeconomic environment could turn favorable for gold. With the U.S. monetary tightening cycle nearing its end and the dollar potentially reaching its peak, we may see a moderation in U.S. 10-year yields and the dollar’s strength. This shift could bolster gold’s investment appeal, offering a ray of hope for its recovery in the near term.

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