Gold declines and the dollar strengthens just as the holiday season begins next week

Gold futures are currently trading lower by $10.40 or a decline of 0.51%. This is a larger percentage decline than gains witnessed in the dollar today. Because gold is paired against the dollar, there is a 100% inverse correlation between dollar strength or weakness and gold prices rising or falling. The fact that the dollar gained 0.34% and gold futures are currently down 0.51% we can derive that dollar strength accounted for approximately 60% of today’s loss in gold with the remaining 40% directly attributable to selling pressure by investors.

As of 4:25 PM EST gold futures basis the most active February contract is down $10.40 a net decline of 0.51% taking gold to $2043.20. The dollar index is up by 0.34% taking the dollar index to 102.45.

The Federal Reserve has finally signaled an end to its restrictive monetary policy, which was composed of aggressive rate hikes and a reduction of their asset balance sheet. The Fed also announced its plans to begin cutting interest rates next year. The question becomes when will the first rate hike be implemented? And how deep will the rate cuts be next year? 

As underscored by Federal Reserve members, monetary policy decisions will continue to be flexible and based on the most recent data involving the economy and inflation. Chairman Powell stated that based on the median votes contained in this month’s “dot plot”, it is anticipated that the Federal Reserve will cut rates by 75 basis points by implementing three 1/4% cuts.

Therefore, investors will be laser-focused on Friday’s PCE index report, which will either strengthen or lessen how aggressively the Federal Reserve cuts rates next year. Currently, predictions for the Personal Consumption Expenditures index anticipate that inflation will continue to decline. On Friday, investors will have the latest data on 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.

This coupled with continued geopolitical concern about the Middle East conflict should be highly supportive of gold prices, keeping prices above $2000 per ounce.

On a technical basis, there is minor support at $2028 to $2030. This is based on the current 21-day exponential moving average which is currently fixed at $2028.60 as well as the lows of last Friday and this Monday. Major support for gold futures remains at $2000 per ounce.

Wishing you as always good trading,