Gold Price Forecast: XAU/USD holds below $2,000, all eyes on US PPI, Fed rate decision

• Gold price remains under pressure near $1,980 after the US inflation report.
• The Federal Reserve (Fed) is widely expected to leave rates unchanged at its December meeting on Wednesday.
• Chinese authorities will focus on industrial policy next year, which disappointed investors seeking a big stimulus to boost growth amid China’s worsening deflation.
• Investors await the US PPI and Fed interest rate decision for fresh impetus.

Gold price (XAU/USD) edges lower to $1,980 during the early Asian session on Wednesday. The yellow metal reversed previous gains after the release of US inflation figures. The report reinforced views that the Federal Reserve (Fed) would need to maintain rates higher for longer to bring inflation to the 2% target.

Meanwhile, the US Dollar Index (DXY), a measure of the value of the USD against a weighted basket of currencies used by US trade partners, hovers around 103.80 after retreating from the 104.30 zone. The Treasury yields edge lower, with the 10-year yield dropping slightly from 4.23% to 4.21%.

On Tuesday, the US inflation, as measured by Consumer Price Index (CPI) rose 0.1% MoM in November, in line with the market expectation. The annual figure grew 3.1% in November from 3.2% in October, as estimated. Additionally, the Core CPI, which excludes volatile food and energy prices, rose by 0.3% MoM and 4.0% YoY, matching the market consensus.

The US inflation remains elevated and market players anticipate that the Fed will need to keep rates higher for longer to contain price increases. However, market players will take cues from the Fed monetary policy meeting and Chair Jerome Powell's comments. The Fed is widely expected to leave rates unchanged on Wednesday, with 80% odds of a rate cut in May, according to the CME FedWatch Tool.

Late Tuesday, the Chinese government emphasized the importance of industrial policy next year. The Chinese authorities will guide financial institutions to increase support for technological innovation, green transformation, inclusive small and micro businesses, and the digital economy. This headline disappointed investors seeking a big stimulus to boost growth amid China’s worsening deflation, liquidity crunch in the property sector, weak trade data, and a slowing recovery after Covid lockdowns.

Market participants will monitor the US Producer Price Index (PPI) ahead of the Fed monetary policy meeting on Wednesday. Traders will take cues from the Fed Chair Jerome Powell’s comments after the meeting. If the Fed officials deliver the hawkish remarks, this could exert some selling pressure on the gold price.