Despite unexpectedly strong US jobs data that bolstered the US dollar, gold prices managed to climb, reaching a one-month high near the $2700 per ounce psychological resistance level. This upward movement was fueled by increased geopolitical tensions and uncertainty surrounding the upcoming US political and economic climate.
Inflation Expectations and Treasury Yields Impact Gold
Rising US inflation expectations are also influencing the market. Consumer surveys from the University of Michigan indicate a jump in one-year inflation expectations to 3.3% for January 2025, the highest in eight months, and five-year expectations reaching their highest level since June 2008 at 3.3%. These figures are ahead of crucial US inflation data releases this week, which will further impact expectations regarding the Federal Reserve’s monetary policy.
Adding to the complex picture, US Treasury yields have reached a 14-month high, with the 10-year bond yield climbing to around 4.79%. This surge, driven by the robust jobs report, suggests that the Fed may need to moderate its interest rate cuts. The US economy added 256,000 jobs in December, surpassing market expectations, and the unemployment rate unexpectedly dropped to 4.1%.
Gold’s Growing Investment Appeal
Gold remains a compelling asset in investment portfolios. Global gold trading volumes soared by 39% in 2024, averaging a record $226.3 billion per day. Signaling renewed interest, gold-backed ETFs saw their first net inflows in four years, totaling $3.4 billion in 2024. Despite a slight decrease in holdings, this inflow reflects a shift in investor sentiment, particularly from Asian and North American funds as central banks consider easing interest rate cycles. The World Gold Council noted that this change followed a year where gold prices repeatedly hit record highs.
Technical Analysis and Outlook
Analysts continue to hold a positive outlook on gold. The $2700 per ounce resistance level is key; breaking above it would confirm bullish momentum, pushing technical indicators, such as the Relative Strength Index and MACD, into strong buying territory. While caution is advised in light of potential US dollar gains and upcoming inflation data, the strategy of buying gold on dips remains valid.
Key Takeaway: While acknowledging potential risks, the analysis suggests a positive outlook for gold, driven by geopolitical factors, inflation expectations, and its growing role as a reliable investment asset.
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