Gold prices held steady above the key support level of $4,000/ounce, but the downside risk is increasing as the precious metal seems unable to maintain its upward momentum above the initial resistance level of $4,100/ounce.
For most of the year, as gold prices have risen more than 55%, the precious metal has been largely unaffected by high bond yields and a strong US dollar. However, analysts warn that this correlation is returning, as the interest rate outlook of the Federal Reserve (FED) before the final policy meeting of 2025 is still unclear.
According to the CME FedWatch tool, the market currently rates a more than 69% chance of the FED cutting interest rates next month; however, economists see this decision as a "5050 50". In such an environment, analysts warn that economic data will play an increasingly important role in the coming weeks.
In a recent interview, Ms. Kathy Lien - Director of Proptraderedge.com - said that most of the bad information has been reflected in the market, so any better-than-expected data could put downward pressure on gold prices.
In the short term, from now until three months, gold is a transaction with too many participants. Any positive news next week will pose a risk to gold, she said.
Lien said she will especially monitor initial retail sales data during the long weekend of Thanksgiving. She explained that any data showing solid consumer sentiment could keep the Fed at the rate at its December meeting.
Ms. Barbara Lambrecht - commodity analyst at Commerzbank, also maintained a neutral view when believing that the market will continue to be dominated by the FED.
Only when expectations of a rate cut increase again will gold prices be supported, she said. Its not over yet: the meeting was scheduled for December 9-10, and theres still a chance of one or two important economic data coming out before. However, if interest rate cut expectations do not increase, gold prices may continue to move sideways."
Commodity analysis at TD Securities said that investment demand for gold may stagnate until the Fed gives a clearer direction. In the past two months, gold prices have been moving sideways but still refused to fall sharply. Gold buying by central banks - despite signs of slowing down - is still a factor to hold the market. However, this factor alone cannot create explosive growth momentum like in previous months" - the report stated.
individual investors often react sensitively to the Feds interest rate outlook. Will a long period of Fed interest rate stability trigger a wave of capital withdrawals from precious metals? ".
Retail sales reports, PPIs and more next week could provide a clearer look at US economic health. If data is weak, expectations of a Fed rate cut could recover thereby pulling gold back above $4,100/ounce. Conversely, if strong data continues to reduce the possibility of the Fed cutting interest rates, gold could break the support level of $4,000/ounce, paving the way to $3,970/ounce and $3,930/ounce, said Lukman Otunuga.
In addition to US economic data, some analysts believe that Bitcoin's deep correction could bring new momentum to gold. The digital currency fell more than 10% for the week, approaching the support level of $80,000/token. Bitcoin is currently trading around 84,221 USD/token, down more than 30% from the historical peak of over 126,000 USD.
Gold has proven its value, even surpassing other safe-haven assets such as cryptocurrencies, in the context of Bitcoin weakening. We believe that the attractiveness of gold is still very large and there is no competitor in the current environment," said Mr. Chris Louney - Director of Gold Strategy at RBC Capital Markets.
Louney added that, despite short-term uncertainties, golds holding support above $4,000/ounce is still a positive signal.
I see prices remaining stable above $4,000 an ounce, despite the constantly changing uncertainty, as a good sign especially after the US government shutdown and the data was released again. This shows that demand for gold remains strong, and I believe gold has room to increase next year".
Economic data to watch next week
Tuesday: US PPI, core retail sales, Waiting for sale home contracts.
Wednesday: Sustainable commodity orders, preliminary GDP in the third quarter, Personal Consumption Expenditures Index (PCE).
Thursday: US market closed for Thanksgiving holiday.
