Gold Price Forecast – Geopolitical Fears Capping Gains Ahead of US Retail Sales Data

Gold futures are edging higher on Wednesday as traders attempt to recover from yesterday’s news driven sell-off. The market is still being underpinned by cooling inflation in the United States, but rising geopolitical tensions are capping gains as investors seek protection in the U.S. Dollar.

Although the market is posting a modest gain early in the session, the buying is a little tentative, which could suggest overbought technical conditions. This could give some buyers an excuse to book profits after a more than $170 rally since November 3.

At 11:02 GMT, December Comex gold futures are trading $1783.60, up $6.80 or +0.38%. On Tuesday, the SPDR Gold Shares ETF (GLD) settled at $165.54, up $0.62 or +0.38%.

Underpinned by Fed Slowdown Hopes

Gold prices remain steady near a three-month peak hit on Wednesday as signs of cooling U.S. inflation boosted bets for smaller rate hikes.

The move was driven by a drop in Treasury yields after October’s producer price index figures came in less than expected, further confirming to investors that inflation may be easing.

The latest PPI figures showed wholesale prices rose 0.2% in October, less than the 0.5% increase expected by Dow Jones. Year over year, PPI rose 8% compared to an 8.4% increase in September. The data further indicated to investors that inflation is likely cooling after solid consumer inflation figures last week hinted at that.

After the report, Atlanta Fed President Raphael Bostic said on Tuesday he sees little evidence that aggressive monetary policy tightening is slowing inflation, anticipating that more hikes would be needed to get inflation down to the Fed’s 2% target.

Capped by Safe-Haven Dollar Gains

Gold futures tumbled after the PPI-driven rally as investors took profits and sought shelter in the safe-haven U.S. Dollar, following reports of a Russian-made rocket striking NATO-member Poland.

According to the latest reports, the United States and Western allies said they were investigating but could not confirm a report that the blast resulted from stray Russian missiles, while Russia’s defense ministry denied it.

Short-Term Outlook

Gold traders should brace for heightened volatility with some focused on the U.S. Dollar’s safe-haven appeal and others monitoring the movement in U.S. Treasury yields in reaction to a report on retail sales.

Gold prices could be capped or even move lower if there is an escalation in tensions between NATO and Russia. This could drive the U.S. Dollar higher.

Prices could rally if the tensions are defused and U.S. retail sales data come in cooler than expected.