Overview
Gold futures have experienced a significant decline, dropping nearly 3% in a single trading session. This downturn is attributed to two main factors: heightened expectations regarding the Federal Reserve's monetary policy and a decrease in the geopolitical risk premium following recent diplomatic comments from former President Donald Trump regarding the Middle East.
US CPI and Federal Reserve Response
The primary catalyst for the sell-off in gold was a stronger-than-anticipated Consumer Price Index (CPI) report from the United States. The core CPI rose by 0.3% month-over-month, prompting a hawkish response from Federal Reserve officials. In light of this inflation data, there are indications that the Fed may consider a more aggressive approach to interest rate hikes, with a potential increase of 50 basis points in December being discussed, as opposed to the usual 25 basis points.
Market Reactions
Following the CPI report, the debt markets reacted sharply, with the 2-year US bond yield rising by 19 basis points to 4.75%, marking its most significant one-day increase in several months. Concurrently, the US dollar strengthened against all major currencies. As investors anticipate aggressive monetary tightening from the Fed and as fears of escalating conflict diminish, capital is flowing out of the precious metals market and into safer, higher-yielding debt instruments.
Technical Analysis of Gold
Gold prices rebounded from a low near $3,870 but faced resistance at the 50-day moving average, which is around $4,142. The price remains below the cluster of the 50, 100, and 200 EMAs, situated between $4,140 and $4,260, reinforcing a medium-term downward trend. This situation raises concerns about a potential retest of the psychological $4,000 level and the lows observed in November.