Weakening economic signals boost gold prices; Fed rate cut expectations for December heat up

Gold surges through $4150 during trading, with the market focusing on signals of easing inflation and weakening consumer momentum.

The Consumer Confidence Index plummeted to 88.7, reflecting concerns over employment stability and real income.

Market traders assign an 82% probability to the Fed cutting interest rates by 25 basis points in December, with key economic data to be released on Wednesday.

On Tuesday, the gold/USD price increased by over 0.14%, mainly driven by weak US economic data. The Federal Reserve (Fed) is scheduled to hold the FOMC meeting on December 9-10 (Japan time December 10-11), with expectations for rate cuts during the meeting continuing to rise. Meanwhile, falling US Treasury yields and a weakening dollar provide double support, with gold/USD stabilizing around $4141 after touching an intraday low of $4109.

Weak Economic Data, US Treasury Yields and Dollar Decline Together

US September inflation and retail sales data showed signs of cooling. The Producer Price Index (PPI) rose 2.7% year-over-year, unchanged from previous data, but core PPI fell from 2.9% to 2.6%, below the market expectation of 2.7%, indicating easing producer-side price pressures. Retail sales growth slowed to 0.2% month-over-month, down from 0.6% last month, highlighting weakening consumer support.

Most notably, the Conference Board Consumer Confidence Index for November dropped to 88.7, a significant decline of 6.8 points from October’s 95.5. US households’ concerns over employment prospects, real income, and financial stability deepened, with the government shutdown risk further amplifying this unease.

Against this backdrop, the US Dollar Index (DXY) plunged 0.50%, breaking below the 100 mark to 99.69. The US 10-year Treasury yield fell 3 basis points to 4.00%, with real yields also down 3 basis points to 1.80%. Due to the inverse relationship between gold and real yields, the decline in yields directly supported higher gold prices.

Market expectations for a 25 basis point rate cut at the December FOMC meeting have risen to 82%, a significant increase from 50% last week, reflecting traders’ quick reaction to weakening economic data.

Data Window Before FOMC Silence Period

On Wednesday, the US economic calendar will release two key indicators: durable goods orders and initial jobless claims. These data points will be released before the Fed officials enter the FOMC silence period and could significantly influence market expectations. Investors should closely monitor the performance of these two indicators.

Technical Outlook for Gold: Key Resistance and Support Levels

Gold remains on an upward trend, despite consolidating around the $4200 level. Traders are waiting for new catalysts to emerge. The Relative Strength Index (RSI) remains stable but still above 50, indicating that buying pressure still dominates.

On the upside, the first resistance is at $4200, with the next at the November 13 high of $4245. A successful breakthrough of the latter could open room for a move toward $4300 and the historical high of $4381. On the downside, a break below $4100 support would clear the momentum to challenge the 20-day simple moving average (SMA) at $4045, possibly leading to testing the $4000 round number. The current market is at a critical turning point, and traders should pay close attention to the breakout and consolidation around these levels.