Gold Poised for Gains as Rate Cut Expectations Surge

Market participants are positioning for next week's Federal Reserve meeting with growing conviction. Gold prices found support on Friday following economic data that provides the central bank with room to adopt a more accommodative monetary stance. With inflation expectations cooling and labor market data softening, futures markets are now pricing in an 87% probability of an interest rate reduction.

The case for lower interest rates is being bolstered by more than just inflation metrics. Earlier in the week, the ADP employment report unexpectedly indicated a loss of 32,000 private sector jobs. Concurrently, initial jobless claims have remained at levels consistent with a cooling employment landscape.

Notably, the official jobs report from the Bureau of Labor Statistics has been unusually postponed from the first to the 16th of December. While this absence of a key data point subdued trading volumes on Friday, it has simultaneously amplified market anxiety ahead of the impending Fed policy decision.

Inflation Outlook Dims, Clearing Path for Policy Shift

The preliminary University of Michigan Consumer Sentiment Index rose to 53.3 in December, surpassing the forecast of 52.0. However, for gold investors, the inflation component held far greater significance. Consumer expectations for one-year inflation dropped from 4.5% to 4.1%, marking the lowest reading so far this year.

Should investors sell immediately? Or is it worth buying Gold?

This decline signals to the Federal Reserve that price pressures are subsiding, effectively reducing the perceived risk that a rate cut could trigger a renewed inflationary spiral. Gold responded immediately, rallying from its weekly lows.

Technical Landscape Holds the Key to Near-Term Direction

The precious metal is currently trading within a constrained range. A critical support zone between $4,180 and $4,200 has proven to be a stable floor in recent sessions. As long as prices hold above this level on a daily closing basis, the short-term upward trend remains valid. Movement to the upside is currently capped by resistance at $4,264. A decisive break above this barrier would pave the way for a test of new record highs.

Gold settled at $4,227.70 on Friday, approximately 0.9% below the 52-week high recorded the previous Sunday. Market volatility remains manageable at an annualized 15.7%, while the Relative Strength Index (RSI) sits at a neutral 57.7.

All Eyes on the December 18th Decision

The confluence of receding inflation expectations and a faltering labor market has created a clear consensus. Should the Federal Reserve proceed with a rate cut on December 18th, gold is likely to mount a concerted assault on the $4,300 level. Conversely, a surprisingly hawkish decision to pause would place the $4,180 support area under significant pressure.