5 min readGold experienced a strong rally in 2024, posting 27.5% gains across the year. The rally was fueled by a combination of loosening monetary policies from major central banks, particularly the Federal Reserve, safe-haven demand owing to geopolitical tension in Russia and the Middle East, and strong central bank buying, notably from China and India. XAU/USD rose to an all-time high of $2790 at the end of October, just before Trump won the US election.
However, the price fell sharply following Trump’s re-election, dropping to a low of $2536 on November 14. The market is bracing for fewer rate cuts in Trump’s second time in the White House, as he is expected to implement inflationary measures such as tax cuts and trade tariffs. As a result, US treasury yields rose to a 14-month high, and the USD hit a two-year peak against its major peers, which kept USD-denominated Gold below $2700.
However, more recently, the precious metal has shown signs of recovery. Gold is climbing for a third straight day and has risen in seven of the past eight trading days. The precious metal has rallied $120 per ounce since its December low of $2583, breaking above $2700 to its highest level since December 12th.
US underlying inflation cooled, raising Fed rate cut bets
Gold prices are being boosted on Thursday by cooler-than-expected US core inflation data, which has raised hopes of further rate cuts from the Federal Reserve.
Core inflation in the US unexpectedly slowed to 3.2% year on year, and headline consumer prices printed in line with expectations, with no upside surprise. The easing of underlying inflation points to progress in disinflation, which could prompt the Federal Reserve to ease monetary policy. Lower interest rates reduce the opportunity cost of holding non-yielding assets such as gold. Falling US treasury yields also offered some relief for gold.
Following yesterday’s data, the market has raised rate cut expectations and, according to the CME FedWatch tool, is pricing in 50% probability of two rate cuts in 2025, with the first reduction potentially coming as soon as June. This is up from the one rate cut expected prior to the data and forecast in December.
Attention will now turn to US jobless claims and retail sales data, which are due to be released shortly and could provide further clues about the health of the US economy.
Gold safe-haven demand eases on Israel-Gaza cease-fire
Safe-haven gains for gold are being limited after Hamas and Israel agreed to a ceasefire deal for Gaza after 15 months of conflict. The price of gold has reached multiple record highs and is still up around 50% since the war started in October 2023.
While de-escalating geopolitical tensions are fading safe-haven demand, gold has still held on to most of its post-inflation data gains, suggesting that the Fed outlook is the primary driver for gold prices.
Gold could continue to benefit from a supportive environment if the market maintains expectations for Fed rate cuts in 2025.
Where next for Gold prices?
The 100 SMA is guiding gold higher. The price has risen above the falling trendline dating back to late October and has retaken the 2700 psychological level.
Buyers, supported by the RSI above 50, will look to extend gains above the year-long rising trendline resistance to 2725, the December high. Above here, 2750 and 2790 come into play.
The 100 SMA at 2635 is a key support on the downside.
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