XAU/USD on a 'Santa rally'?

Gold price fluctuated wildly throughout the week as investors assessed the US inflation report, the Federal Reserve’s policy outlook and its potential impact on the global economy. Next week’s economic calendar will not be offering any high-impact data releases and thinning trading conditions into the holiday season could make it difficult for the precious metal to make a decisive move in either direction.

Although China took additional steps toward reopening at the beginning of the week, Gold price struggled to gain traction with investors refraining from betting on an improving demand outlook ahead of the key macroeconomic data releases and central bank events. With the benchmark 10-year US Treasury bond yield building on the previous Friday’s recovery gains and rising above 3.6%, XAU/USD snapped a four-day winning streak and declined nearly 1% on Monday.

Next week

The Conference Board will release the Consumer Confidence Index data for December on Wednesday. In November, the one-year inflation rate expectation component of the survey rose to 7.2% from 6.9% in October. Another increase in that component should help the US T-bond yields edge higher and weigh on XAU/USD and vice versa. On Thursday, the US economic docket will feature the final revision to the annualized third-quarter Gross Domestic Product (GDP) growth, which is unlikely to trigger a reaction since it’s expected to match the previous estimate of 2.9%. 

Ahead of the weekend, the US Bureau of Economic Analysis will publish the PCE Price Index figures for November. Markets expect the annual Core PCE inflation, the Fed’s preferred gauge of inflation, to decline to 4.6% from 5% in October. On a monthly basis Core PCE inflation is forecast to rise by 0.4%. In case the monthly figure comes in below the market consensus, Gold price could gain traction given the market feedback to soft CPI figures. Ahead of the Christmas holiday, however, trading conditions could thin out and cause the reaction to remain short-lived. On the other hand, a stronger-than-forecast monthly Core PCE inflation should have the opposite effect and weigh on XAU/USD.

Market participants will also pay close attention to risk mood. Following the dismal performance of Wall Street’s main indexes this past week, investors could look to take advantage of low prices, opening the door for the infamous ‘Santa rally.” In case major equity indices in the US start pushing higher, XAU/USD will gather bullish momentum.