Gold has reclaimed $4,000 after October's drop, but the recovery still faces hurdles. Technology-driven volatility and shifting Treasury yields could complicate the rally, and Tuesday's CPI report may decide whether it extends.
Gold gained around 5% last week, even after giving back some of its advance following Friday's stronger-than-expected US jobs report. The metal has managed to reclaim and hold above $4,000, a level that briefly gave way toward the end of October.
Prices were trading around $4,100 at the time of writing. However, the next leg of the move will probably depend on inflation data and whether the tech turmoil begins to affect demand for liquidity.
Tech sell-off and falling yields pull gold in two directions
Investors remain preoccupied with the recent technology sell-off and the consequences of the Democratic takeover of Congress for the AI investment boom. Heightened uncertainty would ordinarily support safe-haven demand, but a deeper equity sell-off could trigger another round of forced liquidation. Investors facing losses in technology holdings may sell gold to raise cash or meet margin requirements, and a recovery in the dollar would make matters worse.
Supportive factors exist as well. Short-dated US Treasury yields have declined recently, reducing the dollar's interest-rate advantage and making non-yielding gold relatively more attractive. Yet oil has been attempting to stabilise in the last couple of sessions, and yields have started to edge higher. If that gathers momentum, gold could find it harder to sustain its latest advance.
Tuesday's CPI report is the next test
The immediate focus is Tuesday's US CPI report, due at 13:30 GMT, with producer price inflation following on Friday 13 November. Friday's jobs figures reinforced the view that the US labour market remains relatively resilient, leaving the Federal Reserve with less urgency to ease policy.
A softer reading could keep Treasury yields contained, limit the dollar's recovery and reinforce expectations that the Fed will leave rates unchanged in December. Another upside inflation surprise, however, could revive expectations of a December rate hike, pushing yields higher and putting renewed pressure on the metal.
Technical levels to watch
The break back above the $3,940–$4,000 region makes it the first major support area to watch. The next obstacle sits between $4,106 and $4,150, an area that has already contained an attempt to move higher.
A return below $3,940 would significantly weaken the technical outlook and expose the 127.2% Fibonacci extension around $3,738. For now, the recovery is not yet fully convincing.
Source: Investing.com
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