Are we witnessing a new inflection point or more upside for gold today?
Gold prices witnessed a bearish move on Tuesday, as the precious metal retreated from near all-time highs to settle around $4,280 per ounce.
The decline comes on the heels of five consecutive sessions of gains, as investors resorted to profit-taking in anticipation of a package of crucial US economic data that could set the course of global monetary policy and commodity markets.
Risky wait: Economic data leads the way
Investors face a critical waiting period this week, with a series of delayed U.S. economic reports due for release due to the previous government shutdown.
The data will fill a major information gap and provide crucial clues about the health of the US economy, which in turn will influence the Federal Reserve's interest rate decisions.
The most important will be the US non-farm payrolls report followed by the unemployment rate, retail sales and preliminary manufacturing data are also due, while the November inflation reading, due out on Thursday, will be watched.
US interest rates and the future of gold
The US interest rate factor remains the strongest driver of global gold prices, with the yellow metal showing high sensitivity to any hints about the Fed's monetary policy path.
Previous interest rate cuts this year have boosted gold's appeal as a non-yielding asset, contributing to its jump of more than 60% since the beginning of the year.
Currently, financial markets expect a 75.6% probability that the Fed will keep rates unchanged at the January meeting, although some analysts expect two more cuts over the next year.
The Fed's most recent projections point to just one rate cut in 2026 and another in 2027.
Therefore, markets will be looking closely at this week's data for any signs that support or refute these expectations.
Other factors supporting gold
Besides the interest rate factor, several other factors are supporting gold's long-term uptrend:
- Central bank buying: Global central banks, particularly in emerging economies, continue to boost their gold reserves, providing structural support for demand.
- Weakening confidence in traditional assets: Gold continues to attract investors as an alternative to sovereign bonds and currencies in an uncertain economic environment.
- Record performance for precious metals: Gold and silver are on track for their best annual performance since 1979, reflecting strong bullish momentum in the sector.
Summary of expectations after this week's data releases
Gold's near-term future looks constrained by the outcome of US economic data. Possible scenarios are:
- A bearish scenario for gold:
If the NFP and inflation data show more strength than expected, this will push the US dollar higher and delay interest rate cut expectations, which could increase pressure on gold prices and push them towards testing lower support levels.
- Bullish scenario for gold:
If the data comes in weaker than expected, especially in the jobs report and the unemployment rate, hopes for faster and deeper rate cuts from the Fed will return.
This scenario will push gold higher again, possibly approaching to test its previous record highs around $4380 per ounce, and even heading to form new highs.
At the end of the day, the gold market is at a pivotal moment where technical analysis intersects with the critical fundamental landscape.
While the short-term pullback may continue due to profit-taking, strong fundamentals and strategic buyers form a strong support barrier.
Investors' decisions over the next few days will be governed by the market's collective impression of the health of the US economy and the path the Fed will take in its journey to combat inflation without hindering growth.
