The aggressive push by markets to price in rate cuts in the last two weeks had been a major tailwind for gold, culminating in a fresh record high last week. But the reversal candle is an ugly one on the charts and since then, gold hasn’t quite recovered its composure and is now dropping back under $2,000 on the day. So, what’s next for gold?
Gold (XAU/USD) daily chart
Similar to the rest of the other asset classes, gold will be subject to the key risk events taking place this week. The first will be the US CPI data tomorrow before moving on to major central bank meeting decisions. On the latter, it’s not so much about the rate decisions but communication on the rates outlook. That is the big clue that gold traders will have to watch out for.
If policymakers, especially the Fed, maintains that the higher for longer narrative is the way to go, there might be scope for a further retracement in gold heading into the festive period.
What makes it tricky is that gold tends to find strong inflows heading into the turn of the year. And January has historically been the best month for gold seasonally speaking. Here’s a look at the past performance of gold on the first month of the year during the last 15 years:
So, with traders already pricing in a considerable amount of rate cuts now and the potential for that to be checked back this week, will that knock the wind gold’s sails heading into January? I mean, gold had already risen by over 10% combined in October and November this year.
That is definitely something to think about, especially since the first Fed meeting decision next year will only be at the end of January itself.