Gold (XAU/USD) hovers above the $2,600 mark on Wednesday, finding support after a recent sell-off, as US inflation data met expectations. This pause in Gold’s decline reflects a technical hold at a long-term trendline, which is maintaining support for the precious metal despite downward pressure from factors including ETF outflows, a strong US Dollar, and competition from alternative assets.
Key Drivers:
- US Inflation Data:
- Headline CPI rose to 2.6% year-over-year, with Core CPI stable at 3.3%—both in line with forecasts, tempering immediate concerns about inflation escalation.
- While the Federal Reserve was previously expected to continue rate cuts, expectations have shifted due to potential inflation from Trump’s proposed policies. This could reduce support for Gold as a lower interest-rate environment is less likely.
- Gold ETF Outflows:
- ETF outflows have exerted pressure on Gold prices, with around $809 million sold off in early November, indicating reduced investor appetite for the asset, particularly in North America.
- Alternative Assets and Equity Market Gains:
- Competition from surging assets like Bitcoin, reaching near-record highs, and US equities bolstered by expectations of tax cuts and deregulation, are diverting funds away from Gold.
- Geopolitical Risks:
- Elevated geopolitical tensions, such as the unresolved Russia-Ukraine conflict and potential Middle East unrest, could stimulate safe-haven demand for Gold. However, the market impact remains unclear as these risks are balanced by other economic factors.
Technical Outlook:
Gold’s recent dip to the $2,600 level found technical support at a long-term trendline, but it remains in a short-term downtrend.
- Downside Risks: A decisive break below the trendline, especially with a strong red candle closing below $2,600, would likely push Gold toward $2,540 (near the 100-day SMA).
- Upside Potential: Medium- and long-term uptrends remain intact, offering the potential for a reversal higher, though a clear bullish signal is yet to emerge.