Gold prices (XAU/USD) extended their recovery from a one-month low on Thursday, reaching a fresh daily high of approximately $2,622 during the early European session. This upward movement follows a significant rebound from the prior session’s decline, driven by a global shift toward risk-off sentiment. The Federal Reserve’s hawkish tone following its latest meeting has sparked concerns, alongside heightened geopolitical tensions and trade war fears, all of which have contributed to increased demand for safe-haven assets, such as gold.
The U.S. Dollar (USD) has been consolidating its gains from the previous day, following a post-FOMC surge to a two-year high. Despite this, the Fed‘s indication that it will slow the pace of interest rate cuts continues to support U.S. Treasury bond yields, offering some upward momentum for the dollar. This, in turn, limits the potential for further gains in gold, which remains a non-yielding asset, cautioning bullish traders.
Flight to Safety Boosts Gold
On Wednesday, the Federal Reserve lowered its benchmark interest rate for the third time since September, signaling a slowdown in the pace of rate cuts. This decision led to a sell-off in U.S. equities, which was reflected in a sharp drop in Asian stock markets on Thursday. The market’s flight to safety has benefitted traditional safe-haven assets, including gold, which saw a significant rebound from its recent one-month low.
The Fed’s updated economic projections, as indicated by its “dot plot,” suggest that the federal funds rate could fall to 3.9% by 2025, with two more 25-basis-point rate cuts expected, compared to the previous forecast of four cuts. In a post-meeting press conference, Fed Chair Jerome Powell noted that while inflation has eased considerably over the past two years, it remains above the central bank’s 2% long-term target.
As a result of these developments, U.S. Treasury yields, particularly on the 10-year benchmark note, rose to their highest levels since May, providing support for the U.S. Dollar and limiting further upside for gold.
Upcoming U.S. Data and Technical Analysis
Looking ahead, traders are focusing on the U.S. economic docket for potential short-term catalysts. Thursday’s release of the final Q3 GDP data and weekly initial jobless claims will be closely watched, with an eye toward the U.S. Personal Consumption Expenditures (PCE) Price Index, which is set for release on Friday. As the Federal Reserve’s preferred inflation gauge, the PCE Price Index is expected to play a crucial role in determining the direction of both the U.S. Dollar and gold in the coming days.
From a technical perspective, gold’s recent price action has been influenced by key levels. On Wednesday, the price closed below the 100-day Simple Moving Average (SMA) for the first time since October, as well as the critical $2,600 support level. This break has triggered bearish sentiment, with oscillators on the daily chart showing negative momentum, suggesting that further downside could be on the horizon for gold.
Thursday’s attempted recovery stalled near $2,618, which corresponds to the 23.6% Fibonacci retracement level of the recent decline from a one-month high. This area is now seen as a pivotal resistance point. A move above this level could trigger short-covering and push gold prices towards the $2,635 region, or the 38.2% Fibonacci retracement level, with potential for a move toward the $2,655-$2,656 supply zone.
Conversely, the immediate downside appears protected by the Asian session low around $2,584-$2,583. If gold breaks below this level, the next key support is around $2,560. A deeper correction could target the November swing low near $2,537-$2,535. If selling pressure persists, a drop below the psychological $2,500 mark may open the door to the 200-day SMA support near $2,470.
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