Gold prices sank to a near two-month low on Thursday as an appreciating dollar weighed on the commodity complex after inflation in the US remained sticky.
The gold price drifted lower for the fifth consecutive trading day as the dollar maintained its postelection rally.
A stronger dollar makes commodities priced in the greenback more expensive for overseas buyers, limiting demand for the yellow metal.
At the time of writing, the December gold contract on COMEX was $2,563.35 per ounce, down 0.9% from the previous close.
The contract is near a two-month low on Thursday.
Among other metals, copper dropped to a three-month low amid a stronger dollar and concerns over poor demand from top consumer, China.
The latest round of stimulus package from China largely underwhelmed the market, while possibility of increased tariffs from the US weighed on sentiments.
“The commodity continues to be weighed down by an extension of the US Dollar’s (USD) post-election rally to a fresh year-to-date, bolstered by optimism over the expected expansionary policies by the incoming Trump administration,” Haresh Menghani, editor at Fxstreet, said in a report.
Gold sinks after US CPI data
The US Bureau of Labor Statistics said on Wednesday that the consumer price index rose 0.2% in October and by 2.6% on an annual basis.
Though the inflation data came in line with market expectations, the sticky rate confused the market about possible rate cuts by the Federal Reserve in the coming months.
Hotter inflation could prompt the US central bank to slow down its rate-cut cycle. This is bearish for gold as lower rates boost the price of the non-yielding precious metal.
Menghani noted:
Meanwhile, Trump’s potentially inflationary tariffs might force the Federal Reserve to pause its easing cycle. Moreover, the US consumer price index released on Wednesday pointed to a slower progress toward bringing inflation down and could result in fewer rate cuts next year.
The current scenario also remains positive for elevated Treasury yields, which is driving inflows out of non-yielding commodities such as gold and silver.
Focus on Fed’s policy stance
Commenting on the inflation report, Dallas Fed President Lorie Logan said that the US central bank has worked to bring down inflation, but should proceed cautiously.
St. Louis Fed President Alberto Musalem noted that risks to higher inflation remained, and that sticky inflation makes it difficult for the bank to cut rates further.
President-elect Donald Trump’s policies of increased tariffs and tax cuts could accelerate inflationary pressures, which would limit the rate-cut cycle.
Traders still remain positive about another interest-rate cut in December by the Fed.
According to the CME FedWatch tool, traders have priced in an 82.8% probability of Fed cutting rates by 25 basis points in December.
Source: CME Group
So far, the central bank has cut rates by 75 bps over the course of two policy meetings in September and November.
Short-term technical analysis
Gold prices were in a bearish trend with prices near the pivot point of $2,551.66 per ounce.
“From a technical perspective, the overnight breakdown below the $2,600 mark, which coincided with the 38.2% Fibonacci retracement level of the June-October rally, was seen as a fresh trigger for bearish traders,” Menghani said.
The immediate support for prices was seen at $2,529 per ounce. If gold breaks below this, the further decline could be expected around $2,506 or even $2,483, according to FXempire.
However, if prices can consolidate above the $2,551 pivot, then the momentum can take the precious metal up to $2,574 and then $2,604.
Source: TradingView & FXempire
Arslan Ali, analyst at FXempire, said:
The 50-day EMA, positioned at $2,650, indicates a broader downtrend. Notably, gold is near an oversold condition, which, along with a possible double-bottom pattern, suggests potential upward movement if support holds.
Copper prices plunge
Copper prices on the London Metal Exchange fell sharply below the crucial $9,000 per ton mark.
Prices had fallen to a three-month low of $8,900 per ton earlier on Thursday as poor demand concerns from China continued to underpin the market.
At the time of writing, the three-month copper contract on LME was $8,925.50 per ton, down 1% from the previous close.
The recent package of $1.4 trillion announced by the National People’s Congress to finance local government debts in China failed to prop up sentiments.
Experts said that the lack of focused spending of the Chinese government disappointed investors.
Beijing is expected to announce further stimulus measures in two key political meetings scheduled for December.
Investors will be eyeing the release of China’s industrial production data and retail sales figures, due to be released on Friday.
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