Gold Tests Key Support Ahead of Inflation Data, Fed Decision

investing.com:

Following Friday’s stronger US data, both gold and silver slumped to close the week sharply lower, even if the former had hit a new record high at the start of last week and the latter reaching its best level since May. The metals broke down as the dollar and bond yields rebounded after a stronger jobs report and consumer sentiment data pushed back expectations for the Fed’s first rate cut. The focus is now turning to the upcoming release of US CPI today and the FOMC meeting on Wednesday.

Well, a lot depends on the CPI data, but it is also worth pointing that the extent of the drop, some 7%, no less, from last Monday’s record high of $2146, means gold may have over-corrected, if the selling was indeed just driven by those stronger US data releases last week, or expectations thereof earlier in the week. A potential rebound should therefore not come as major surprise this week, given that the prior trend was quite strong, meaning that a lot of would-be buyers who may have missed out, now have the opportunity to pick gold up at a 7% or so discount. What’s more, bond yields have started to retreat again, reducing the opportunity cost of holding gold, an asset that doesn’t pay any interest unlike bonds.

Investors’ focus will be on at least two major events this week, the upcoming US CPI data today and the Fed’s rate decision on Wednesday. Following the strong consumer sentiment data and jobs figures for November, the market will be wondering whether they will hear any form of confirmation from the Fed that rate cuts could start at the end of Q1 or start of Q2 next year, after all. Perhaps, the upcoming CPI report could determine how hawkish or dovish the Fed will be on Wednesday. So, that’s where investors’ focus will be