Gold Price Future: $2,646 Support Critical with Inflation Data on the Horizon

Gold Nears Key Support as Market Awaits U.S. Inflation Data

Gold prices slipped Monday, approaching the critical 50-day moving average at $2,646.83, a level that has supported the metal since July. A test at this level may trigger a technical bounce, but a decisive break could mark a sentiment shift, exposing the metal to further downside with the next target at $2,604.39.

The recent trend of “buying the dip” may be fading, indicating that traders are bracing for a deeper correction. To restore bullish momentum, gold would need to clear minor resistance levels at $2,668.52, $2,697.28, and $2,716.76.

At 11:17 GMT, XAU/USD is trading $2660.34, down $24.11 or -0.90%.

Treasury Yields Surge on Trump Re-Election and Rate Cut Expectations

Following the re-election of Donald Trump, Treasury yields rose sharply last week, reflecting inflationary concerns. The 10-year Treasury yield closed at 4.306% after topping 4.4%, while the 2-year note settled at 4.25%. Analysts expect Trump’s policies could drive up inflation and bond yields, limiting the Federal Reserve’s ability to cut rates aggressively.

Last week, the Fed cut rates by 25 basis points to a range of 4.50%–4.75%. While traders currently see a 63% chance of another rate cut in December, the Fed may move more cautiously in 2024, with a potential terminal rate of 3.5% rather than the previously forecasted 3.0%.

Dollar Firms as Traders Focus on Inflation Data and Fed Speakers

The dollar opened Monday on steady footing as markets await key economic data, including October’s inflation report, due Wednesday. Economists expect the Consumer Price Index (CPI) to rise 0.2% for the month and 2.5% year-over-year, with core inflation projected to remain at 0.3% monthly and 3.3% annually. The Producer Price Index (PPI) is expected to increase by 0.3% month-over-month and 2.3% annually. Higher-than-expected inflation data could diminish the likelihood of a December rate cut, providing further support to the dollar.

Investors will also monitor speeches from multiple Fed officials, including Chair Jerome Powell on Thursday, for hints on future policy moves. Other key releases, such as retail sales and industrial production data on Friday, could provide further insights into economic resilience.

China’s Economic Struggles Weigh on Gold Outlook

Data out of China over the weekend showed softening consumer prices and deepening producer price deflation, underscoring weak demand. Beijing’s recent stimulus measures appear to be falling short, which could weigh on commodity markets. Reports on China’s retail sales and industrial production later this week will offer more clarity on whether recent policy efforts are impacting demand.

Market Forecast: Bearish Bias on Gold if Key Support Fails

With gold trading near critical support at $2,646.83 and the dollar likely to strengthen on anticipated inflation pressures, downside risks for gold are elevated. If the metal falls through this support, it could accelerate toward the next target of $2,604.39. A strong U.S. inflation reading and hawkish signals from the Fed would likely reinforce expectations for elevated interest rates, supporting the dollar and keeping gold under pressure. This outlook suggests a bearish bias for gold in the short term.