Gold prices are nearing seven-week highs, surpassing $4,350 in early European trading. A strong but slowing U.S. labor market and a mixed employment report for November have raised hopes for more U.S. Federal Reserve rate cuts, which could weaken the U.S. dollar. Lower interest rates may make gold more attractive because it does not earn interest.

Federal Reserve Actions and Market Impacts

In December, the Federal Reserve cut rates by 25 basis points. Fed officials have different opinions on possible cuts in 2026, with some suggesting no further reductions. We are watching for key speeches from New York Fed President John Williams and Atlanta Fed President Raphael Bostic. If they express hawkish views, it could strengthen the U.S. dollar and impact gold prices. Investors are also focused on upcoming U.S. inflation data, with the Consumer Price Index set for release on Thursday and the Personal Consumption Expenditures Price Index on Friday. These reports may influence expectations for future rate cuts. In November, U.S. Nonfarm Payrolls increased by 64,000, surpassing expectations, while unemployment ticked up slightly to 4.6%. There are discussions about a potential new Fed Chair. Trading above $4,305 indicates we might retest the all-time high of $4,381. Central banks, major holders of gold, added 1,136 tonnes to their reserves in 2022. Gold often rises with geopolitical tensions or fears of a recession due to its inverse relationship with the U.S. dollar and Treasuries, along with its safe-haven status. Gold is pushing towards seven-week highs of around $4,350 as the market bets on U.S. Federal Reserve rate cuts in 2026. A weaker U.S. dollar and a slowing, but stable, labor market create a favorable environment for gold, especially with key inflation data coming this week.

Upcoming Economic Indicators

Key events to watch are the U.S. Consumer Price Index (CPI) on Thursday, followed by the Personal Consumption Expenditures (PCE) report on Friday. Analysts expect the CPI to fall to 2.7% year-over-year, which would likely support the idea of looser monetary policy. However, if the CPI surprises to the upside, it could challenge the current narrative of expected rate cuts. According to Fed funds futures, there’s a high chance (over 75%) that rates will remain unchanged in January, meaning no immediate action is anticipated. Still, the market is pricing in a 60% chance of a first 25-basis-point cut by the May 2026 meeting. This sentiment indicates that any dips in gold’s price could be seen as buying opportunities. With these important data releases on the horizon, we’re seeing increased volatility in gold options, making strategies that benefit from large price swings attractive in the short term. For those who expect gold to rise, buying call options is a way to leverage a potential breakout above recent highs. Technically, we should closely monitor the $4,350 level, which corresponds to a previous high from December 15. A sustained move above this level could lead to more buying and a challenge to the all-time high of $4,381. If prices fall, the first support level we are watching is the December 16 low of $4,271. We should also note the strong demand from central banks, creating a solid price floor. The record purchases in 2022 exceeded 1,100 tonnes, setting a new standard for official sector buying that has continued into 2023 and 2024, limiting the extent of price corrections. Finally, the geopolitical situation remains a supportive factor for gold. For instance, the recent U.S. order to blockade sanctioned oil tankers from Venezuela heightens global uncertainty. This backdrop suggests that any unexpected international tensions could further boost gold prices in the coming weeks. Create your live VT Markets account and start trading now.

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