Gold prices remain resilient above the crucial $2,650 mark early Tuesday, as market sentiment remains largely positive due to persistent weakness in the US Dollar (USD) and softening US Treasury bond yields. The spotlight now shifts to upcoming US Retail Sales data, which is expected to offer further insights into the health of the economy as the US Federal Reserve (Fed) kicks off its two-day monetary policy meeting later on Tuesday.
Traders are preparing for the impact of the Federal Reserve’s policy decisions, with market participants adjusting their USD positions ahead of Wednesday’s pivotal rate announcement. Despite the release of mixed economic data, including the US S&P Global preliminary Manufacturing and Services PMI figures, which showed a contraction in the manufacturing sector but a surprise jump in services, market volatility in Treasury yields has remained muted.
The latest PMI data for December showed that the US manufacturing sector continued to struggle, with the index dipping to 48.3, lower than the expected 49.4. On the other hand, the services sector saw stronger-than-expected growth, with the PMI climbing to 58.5 from November’s 56.1, far surpassing the market forecast of 55.7.
With these economic signals in mind, traders are focusing on the outcome of the Fed’s policy meeting and the release of US Retail Sales data for November. The CME Group’s FedWatch Tool currently suggests a 100% probability that the Fed will implement a 25 basis point rate cut during Wednesday’s session, reinforcing the demand for gold as a non-yielding asset.
Despite these bullish factors for gold, growing concerns that the Fed may scale back its rate cuts in 2025, with a potential pause in the easing cycle come January, have created a counteracting force. As a result, investors are keenly awaiting the Fed’s quarterly economic projections and Chairman Jerome Powell’s subsequent remarks, which will likely influence expectations surrounding future monetary policy and the direction of the gold market.
In addition to the monetary policy outlook, geopolitical risks are continuing to support gold’s appeal. Over the weekend, the US imposed new sanctions on North Korea and Russia, focusing on Pyongyang’s financial activities and its military support to Moscow. These sanctions, coupled with ongoing political instability in South Korea and the volatile situation between Israel and Gaza, are likely to keep investors on edge, further fueling demand for safe-haven assets like gold.
With tensions running high and the Fed’s rate decisions hanging in the balance, gold traders are eagerly awaiting fresh data, particularly the US Retail Sales report. Although this data may not significantly alter expectations for the Fed’s actions, it will provide important context for traders to navigate the uncertain economic landscape.
As gold prices hover around the $2,650 level, the next few days could prove crucial in determining the metal’s short-term direction. If the US Retail Sales data comes in stronger than expected, it may reduce the pressure on the Fed to implement a larger rate cut, potentially pushing gold lower. Conversely, weaker data could reinforce the case for additional rate cuts, propelling gold higher.
Gold’s performance this week is likely to be influenced not just by economic data, but by broader geopolitical developments and the Fed’s long-term policy stance. Traders will closely monitor Chairman Powell’s comments for clues on the future pace of interest rate cuts, as well as any shifts in the central bank’s outlook for the economy in 2025.
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