Gold prices reach near seven-week highs above $4,350 during early European trading. A resilient yet slowing US labour market and a mixed US employment report for November raise expectations for further US Federal Reserve rate cuts, impacting the US Dollar. A decrease in interest rates could make holding Gold more appealing due to its non-yielding nature.
Federal Reserve Actions and Market Impacts
The Federal Reserve introduced a 25-basis-point rate cut in December. Fed members show differing views on additional cuts in 2026, with some indicating no further reductions. Key speeches from New York Fed President John Williams and Atlanta Fed President Raphael Bostic are awaited. Hawkish comments may strengthen the US Dollar and affect Gold prices.
Attention turns to upcoming US inflation data with the Consumer Price Index being revealed on Thursday, followed by the Personal Consumption Expenditures Price Index on Friday. These reports could influence expectations for future rate cuts. Meanwhile, November’s US Nonfarm Payrolls showed a rise of 64,000, exceeding expectations, with unemployment increasing slightly to 4.6%. Discussions are underway for a potential new Fed Chair.
Sustained trading above $4,305 suggests a possible retest of an all-time high of $4,381. Central banks, as major Gold holders, added 1,136 tonnes to reserves in 2022. Gold’s inverse relationship with the US Dollar and Treasuries, as well as its safe-haven status, often causes prices to rise amid geopolitical instability or recession fears.
We see gold pushing towards seven-week highs near $4,350 as the market strengthens its bets on US Federal Reserve rate cuts in 2026. The combination of a slightly weaker US dollar and a slowing, but not collapsing, labor market is creating a positive environment for the metal. This momentum is building ahead of crucial inflation data later this week.
Upcoming Economic Indicators
The key events for us are the US Consumer Price Index (CPI) on Thursday and the Personal Consumption Expenditures (PCE) report on Friday. Current market consensus forecasts headline CPI to fall to 2.7% year-over-year, which, if met or beaten, would likely solidify expectations for easier monetary policy. A surprise to the upside, however, could cause a sharp reversal as it would challenge the rate cut narrative.
Based on Fed funds futures, the probability of a rate hold in January is high at over 75%, so we are not expecting immediate action. However, derivative markets are now pricing in an over 60% chance of a first 25-basis-point cut by the May 2026 meeting. This forward-looking sentiment suggests that any dips in gold’s price are likely to be seen as buying opportunities.
With these major data releases pending, we are seeing implied volatility for gold options tick higher. This makes strategies that profit from a large price swing, regardless of direction, potentially attractive for the coming days. For those with a bullish conviction, buying call options offers a leveraged way to play a breakout above recent highs.
From a technical standpoint, we should watch the $4,350 level very closely as it represents the high from December 15. A sustained move above this resistance could trigger further buying and open the door to test the all-time high of $4,381. On the downside, the first significant support level we are watching is the December 16 low of $4,271.
We must not forget the strong underlying support from central bank demand, which provides a solid floor for the price. The record-breaking purchases we saw back in 2022, which exceeded 1,100 tonnes, set a new precedent for official sector buying. This trend continued through 2023 and 2024, absorbing a significant amount of supply and limiting the severity of any price corrections.
Finally, the geopolitical landscape remains a supportive factor for gold as a safe-haven asset. The recent US order to blockade sanctioned oil tankers from Venezuela adds to global uncertainty. This backdrop suggests that any unexpected flare-ups in international tensions could provide an additional catalyst for gold in the weeks ahead.
