Gold price tumbles as traders book profits after US PPI data

Gold declines over 1% as US PPI rises unexpectedly, countering a weak jobs report and complicating disinflation narrative.
Investors anticipate a potential Fed rate cut with high expectations of a 25 bps reduction next week.
US Treasury yields see a slight increase, adding pressure to Gold prices as market prepares for upcoming Fed decision.

Gold prices snapped a four-day streak of gains on Thursday, tumbling more than 1% as investors digested mixed economic data from the United States. A softer than expected jobs report, but higher prices on the producer’s side, kept traders from pushing Bullion prices higher. The XAU/USD trades at $2,684.

The Producer Price Index (PPI) exceeded forecasts, hinting that the disinflation process might be stalling. Along with that, the US Bureau of Labor Statistics revealed the labor market is cooling as the number of Americans filing for unemployment benefits was above estimates.

Bullion prices dropped on speculation that traders booked profits ahead of the Federal Reserve’s (Fed) monetary policy decision next week.

There’s growing certainty that the Fed will lower borrowing costs by 25 basis points at the December 17-18 meeting. The swaps market shows odds of 98% that the fed funds rate will be cut to the 4.25%-4.50% range.

Source: Prime Market Terminal

A timid jump in the US 10-year Treasury bond yield of one-and-a-half basis points to 4.289% weighed on the golden metal.

Earlier the European Central Bank (ECB) lowered interest rates for a third straight meeting, hinted that further easing is coming as inflation edges down toward the 2% goal.

Ahead this week, the US economic docket remains absent with traders bracing for next week’s Fed meeting.

Daily digest market movers: Gold price is heavy as US real yields climb

Gold prices advanced as US real yields rose two basis points to 1.996%.
The US Dollar Index remains firm at 106.75, up 13%.
The PPI for November showed that headline inflation on the producer side rose by 3% YoY, up from 2.4% in October and above forecasts of 2.6%, while core PPI increased by 3.4% YoY, exceeding projections of 3.2% and rising from 3.1%.
US Initial Jobless Claims for the week ending December 7 jumped to a two-month high of 242K, exceeding estimates of 220K.
This data added to Wednesday’s CPI figures, cementing the case for another rate cut by the Fed. However, for 2025, the US yield curve suggests that speculators estimate 100 basis points of easing toward the end of the year.
Data from the Chicago Board of Trade, via the December Fed funds rate futures contract, shows investors estimate 24 bps of Fed easing by the end of 2024.
Analysts at Goldman Sachs noted that China’s central bank “may even increase Gold demand during periods of local currency weakness to boost confidence in their currency.”

Technical outlook: Gold price resumes its bullish trend, eyes $2,721

Gold price rally pauses as the non-yielding metal retraces to the 50-day Simple Moving Average (SMA) at around $2,670. Despite this, momentum remains bullish as portrayed by the Relative Strength Index (RSI). Over the short term though, sellers are in charge.

If XAU/USD slides beneath the 50-day SMA, look for a drop toward $2,650, ahead of the $2,600 mark. On the other hand, if buyers conquer the $2,700 resistance level, the next supply zone tested would be the November 25 peak of $2,721, before challenging the record high of $2,790.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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