Gold bulls emerge as dollar weakness and lower yields spark moderate gains

After Friday’s price decline which can now be interpreted as a possible one-off, gold prices have firmed for the first two trading days of the week. With the holiday season beginning in just a few days, we can anticipate lower volume begin to come in to the markets. Although gold futures traded to a lower low and a lower high yesterday, the net result was a gain of $7.40. Today we are seeing the follow-through buying.

As of 4:21 PM EST, gold futures basis, the most active February 2024 contract is up $12 and fixed at $2053.20. The futures contract traded to a high today of $2061, and a low of $2034.80. Dollar weakness was a solid contributor to today’s gain in gold. Currently, the dollar is down 0.35% and fixed at 102.149. Silver has also regained some bullish momentum after Friday’s strong price decline. The most active March 2024 futures contract is currently up almost a percent (+0.995) and after today’s gain of $0.24 silver futures are fixed at $24.35.

While dollar weakness was a prevalent component in precious metals gains this week, the geopolitical tensions that exist are also a major component, ratcheting up the appeal for the haven component of precious metals pricing. Traders are also factoring in a more dovish Federal Reserve that was exhibited during the last FOMC meeting this year with Chairman Powell not only addressing the question of rate cuts but also summarizing the SEP (Summary of Economic Projections) in which members voted upon their anticipated interest rate level in 2024, 25, and 26. During the next three years, Federal Reserve members anticipate interest rate levels to move lower at a steady pace.

Several reports will come out later this week that could be highly supportive of gold. On December 20 the latest numbers on consumer confidence will be published. This will be followed by numerous reports on Friday, December 22. On Friday investors will have the latest data on the GDP, the PCI as well as the PCE. It is anticipated that the core PCE price index will show a decline from 3.5% in October to 3.3% last month. Headline PCE is expected to reveal a decline from 3% in October to 2.8% last month.

If the actual numbers of the PCE price index come in as currently forecasted, that would be an exceedingly bullish influence for gold prices. Consistent declines in inflationary pressures strengthen the likelihood of deep rate cuts by the Federal Reserve next year. According to Chairman Powell’s press conference, interest rates will decline by three-quarters of a percent next year. Many investors believe the rate cuts will be deeper, with expectations that the Fed will reduce rates by 1 ¼% with five 25-basis point rate cut cuts. This optimistic view would only materialize if the Federal Reserve was solidly convinced that the current trajectory of inflation would lead the United States economy to its target of 2%. 

Wishing you as always good trading,