Gold price holds steady above $2,600 mark, upside potential seems limited
- Gold price edges higher on Tuesday, albeit lacking strong follow-through buying.
- The Fed’s hawkish shift acts as a tailwind for the USD and caps the precious metal.
- Geopolitical tensions and trade war fears should support the safe-haven XAU/USD.
Gold price (XAU/USD) attracts some dip-buyers during the Asian session on Tuesday and stalls the overnight modest pullback from a three-day top, though any meaningful appreciating move seems elusive. The US Dollar (USD) stands firm near a two-year high touched last week amid the Federal Reserve's (Fed) hawkish outlook. Furthermore, the prospects for a slower pace of rate cuts by the Fed in 2025 remain supportive of elevated US Treasury bond yields and could act as a headwind for the non-yielding yellow metal.
Apart from this, a generally positive tone around the equity markets might contribute to capping gains for the safe-haven Gold price. Meanwhile, the fundamental backdrop seems tilted in favor of bearish traders and suggests that the path of least resistance for the XAU/USD is to the downside. That said, persistent geopolitical risks stemming from the protracted Russia-Ukraine war and tensions in the Middle East, along with concerns about US President-elect Donald Trump's tariff plans, could lend support to the precious metal.
Gold price lacks firm near-term direction amid mixed fundamental cues
- The Federal Reserve last week tempered the outlook for further rate cuts in 2025, marking a turning point in its monetary policy and underscoring uncertainties surrounding potential policy changes under the incoming Trump administration.
- The yield on the benchmark 10-year US government bond shot to its highest level since May on Monday and the US Dollar stood firm near a two-year peak touched last week, which should cap the upside for the non-yielding Gold price.
- The Israel Defense Forces (IDF) said this Tuesday that sirens were sounded in the centre and south of Israel and that it had intercepted a projectile fired from Yemen as Israeli forces continued their attacks in besieged northern Gaza.
- Russian forces captured two villages in Ukraine and are making steady progress in the Donetsk area. US President-elect Donald Trump urged Ukrainian President Volodymyr Zelenskyy to consider a ceasefire and abandon Russian-occupied territories.
- Traders now look forward to the release of the Richmond Manufacturing Index, which, along with the US bond yields, will influence the USD and provide some impetus amid a relatively thin liquidity on Christmas Eve.
Gold price seems vulnerable amid the formation of a bearish flag on hourly charts
From a technical perspective, the recent recovery from a one-month low, along an ascending channel, constitutes the formation of a bearish flag pattern on hourly charts. Moreover, oscillators on the daily chart remain in negative territory, suggesting that the path of least resistance for the Gold price is downward. That said, it will still be prudent to wait for a convincing break below the channel support, currently pegged around the $2,605-$2,600 area, before positioning for any further depreciating move.
The subsequent downfall could drag the Gold price back towards the monthly trough, around the $2,583 region touched last week. Some follow-through selling will be seen as a fresh trigger for bears and set the stage for a slide towards the November monthly swing low, around the $2,537-$2,536 area en route to the $2,500 psychological mark.
On the flip side, the $2,633-$2,634 zone, or a multi-day top touched on Monday, which nears the top boundary of the ascending channel, might continue to act as an immediate strong barrier. A sustained strength beyond might prompt some short-covering and lift the Gold price to the $2,654-$2,655 region. The latter should act as a key pivotal point, which if cleared decisively will negate the near-term negative bias and pave the way for additional gains towards reclaiming the $2,700 round figure.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.