Gold prices surged nearly 1% in the domestic futures market on Wednesday morning, as traders anxiously awaited the release of November’s US inflation data. The yellow metal’s rise came amidst escalating geopolitical tensions, healthy domestic demand for gold, and expectations that inflation readings would guide the US Federal Reserve’s future monetary policy decisions. On the Multi Commodity Exchange (MCX), Gold for February 5 expiry rose by 0.7%, trading at ₹78,885 per 10 grams by 9:15 AM IST.
Simultaneously, in the international markets, gold reached a two-week high, ahead of the critical release of the US Consumer Price Index (CPI) data later on Wednesday. This economic report, along with the Producer Price Index (PPI) data set to be released on Thursday, has traders on edge as these reports are expected to heavily influence the Fed’s interest rate decisions in the coming weeks.
The Role of US Inflation Data in Gold’s Rally
Gold prices have been heavily influenced by expectations surrounding US inflation. Analysts anticipate that November’s CPI will show an increase of 2.7%, slightly higher than the 2.6% recorded in October. Similarly, the PPI for November is expected to rise to 2.5%, up from 2.4% in the previous month. Both CPI and PPI are critical inflation gauges that can sway the Federal Reserve’s decision regarding interest rates, and thus, impact the price of gold, a non-yielding asset often viewed as a hedge against inflation.
A strong CPI report could raise concerns about persistent inflationary pressures in the US economy, prompting the Fed to act more aggressively in its monetary policy. In contrast, a weaker-than-expected CPI could lead to continued speculation about further rate cuts. Given the current economic climate, the market is pricing in an 86% chance that the Fed will announce a 25 basis points (bps) rate cut during its next meeting scheduled for December 18.
Despite the expectation of another rate cut, most analysts believe that the Fed may pause its rate cuts in late January, as inflation risks remain a concern. This complex balancing act of addressing economic growth while controlling inflation will continue to dictate the outlook for gold prices, making these inflation data points crucial.
Geopolitical Risks and Their Impact on Gold Prices
In addition to the US inflation data, geopolitical risks have added an extra layer of support for gold prices. Tensions in the Middle East, particularly surrounding Israel and Syria, have heightened in recent days, which has been a key factor in gold’s rally. According to Reuters, Israeli military strikes in Syria earlier this week targeted strategic weapons stockpiles, fueling further instability in the region.
Such geopolitical risks often lead investors to seek safety in assets like gold, which has long been viewed as a store of value during times of uncertainty. As geopolitical tensions escalate, gold’s safe-haven appeal is expected to persist, particularly given the looming uncertainty in both global politics and the financial markets.
Trading Strategies and Key Levels for Gold and Silver
Given the current volatility in gold and silver prices, experts are recommending caution while trading, especially as market participants await the US inflation data. The pre-event rally in gold prices has led some analysts to warn of potential profit-taking, with a strong rebound in the market likely if the inflation data meets or exceeds expectations.
Jateen Trivedi, VP Research Analyst at LKP Securities, advised traders to exercise caution, stating that “while the overall bullish outlook for gold remains intact, the sharp pre-event rally suggests caution. Traders are advised to maintain strict stop-loss levels near ₹77,250 on MCX.” On the Comex, Trivedi noted that $2,540 will serve as a robust support level for gold, and a break below this could signal a deeper correction.
Rahul Kalantri, VP of Commodities at Mehta Equities, provided further insights into key price levels for gold and silver, stating, “Gold has support at $2,684–2,667, while resistance is at $2,714–2,728. In INR terms, gold has support at ₹78,080–77,840, while resistance lies at ₹78,690–78,940. Silver has support at ₹94,850–94,080, while resistance is at ₹96,300–96,940.” These levels provide valuable guidance for traders looking to navigate the current price fluctuations and prepare for possible market movements.
Specific Trading Recommendations for Gold and Silver
For traders looking to enter the gold and silver markets, experts are offering specific recommendations based on current price action and technical indicators. Manoj Kumar Jain, Senior Analyst at Prithvifinmart Commodity Research, suggested buying gold above ₹78,400, with a stop loss of ₹78,140 and a target of ₹79,000. For silver, Jain recommended entering positions around ₹95,200, with a stop loss of ₹94,450 and a target of ₹96,600.
Similarly, Jain also provided insights into gold’s price action on international markets, noting that gold has support at $2,700–2,684, and resistance at $2,747–2,762 per troy ounce. For silver, he pointed to support at $32.40–32.15, with resistance at $33.00–33.30 per troy ounce.
On the MCX, Jain recommended that traders monitor gold’s support levels at ₹78,000–77,770 and resistance at ₹78,700–79,000, while silver has support at ₹94,850–94,100 and resistance at ₹96,200–96,850. These levels are critical as they provide entry and exit points for traders in what is expected to be a volatile session ahead of the US inflation report.
A Volatile Day Ahead: What to Expect
The upcoming release of the US inflation data is expected to bring significant volatility to the markets, particularly in gold and silver. If inflation is higher than expected, the market could see another sharp rise in gold prices, as traders bet on more aggressive interest rate cuts from the Federal Reserve. Conversely, if the data comes in weaker than anticipated, gold prices could face downward pressure as traders reassess their expectations for future rate cuts.
Geopolitical tensions, particularly those involving the Middle East and Syria, will likely continue to support gold prices as investors look for safe-haven assets. Given the combination of inflation concerns, geopolitical risks, and rate cut expectations, the outlook for gold remains bullish in the near term, although market volatility is expected to persist.
Conclusion: Gold’s Outlook Amid Economic and Geopolitical Risks
Gold’s recent price surge is a reflection of the convergence of multiple factors that are supportive of the metal’s value. As investors await crucial inflation data from the US, gold’s role as a hedge against inflation and a safe-haven asset during times of geopolitical uncertainty has come to the forefront.
With inflation data expected to drive the next major market move, traders should remain vigilant and prepared for volatility. Key price levels for both gold and silver will be closely monitored, and the strategies outlined by experts will be vital for navigating the turbulent market conditions. As always, the interplay between inflation expectations, central bank policies, and global geopolitical risks will continue to shape the price trajectory of gold in the coming weeks.
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