Yellow Metal Retreats as Dollar Strengthens, Key Inflation Data on the Horizon

Gold weakens in Thursday’s Asian trading as position-closing activity combines with US Dollar strength to pressure the precious metal lower. However, expectations for further Fed rate cuts and rising geopolitical tensions could limit downside risk for the safe-haven asset.

Market Sentiment Shifts on Economic Data

The yellow metal dipped below $4,350 during Asian hours as traders locked in gains from recent seven-week highs. The US Dollar’s rebound played a significant role in the pullback, though market participants remain focused on what comes next. The upcoming US Consumer Price Index (CPI) data—expected to show headline inflation at 3.1% YoY and core CPI at 3.0% YoY for November—will be a critical catalyst for both Gold and the broader currency markets.

Fed Rate Cut Signals Support Bullish Case

Recent economic releases are reshaping market expectations around monetary policy. Nonfarm Payrolls came in at just 64,000 for November, a significant slowdown from October’s revised figures. This weak jobs data has intensified bets on further rate cuts by the Federal Reserve, with futures now pricing in a 31% probability of a reduction next month—up from 22% just before the report. Lower interest rates would reduce the opportunity cost of holding non-yielding assets like Gold, providing fundamental support for the metal.

Fed officials are sending mixed signals. Governor Christopher Waller expressed support for additional cuts to return policy to neutral, though he cautioned against rushing given persistent inflation concerns. Meanwhile, Atlanta Fed President Raphael Bostic took a more hawkish stance, indicating he opposed last week’s rate cut and sees no case for further reductions unless inflation declines meaningfully.

Geopolitical Tensions Add Safe-Haven Premium

Beyond monetary policy, geopolitical risks are simmering. Venezuela has deployed its navy to escort oil shipments from port in response to US blockade threats targeting the nation’s energy sector. This escalating tension reinforces Gold’s traditional role as a safe-haven asset during periods of uncertainty, potentially capping any further declines in the precious metal.

Technical Picture Remains Constructive

From a technical standpoint, Gold maintains a constructive four-hour chart setup despite Thursday’s weakness. The metal continues trading above the 100-day Exponential Moving Average, a key support level that suggests the path of least resistance remains to the upside. The Bollinger Bands are widening, and the 14-day Relative Strength Index sits above the midline, indicating positive momentum.

If buyers regain control and push XAU/USD above the upper Bollinger Band boundary near $4,352, the all-time high of $4,381 comes into focus, with the $4,400 psychological level serving as the next target. Conversely, a breakdown below the December 17 low of $4,300 could attract selling pressure, potentially pulling the metal toward the December 16 low of $4,271 and the 100-day EMA support at $4,233.

The Unemployment Rate ticked up to 4.6% in November from 4.4% in October, adding to the softer labor market narrative. US weekly Initial Jobless Claims will also release later Thursday, providing additional clues for rate cut expectations.

What’s Next for Traders

The real test comes with Thursday’s CPI release and weekly claims data. Inflation readings that come in hotter than expected could undermine rate cut bets and support the US Dollar, pressuring Gold further. Conversely, a softer inflation print would reinforce the case for monetary easing and strengthen safe-haven demand for the yellow metal. The technical chart suggests traders should watch the $4,352 resistance for potential bullish breakouts, while the $4,300 level marks the threshold for a more significant pullback scenario.