Gold prices (XAU/USD) maintained a positive bias in early European trading on Tuesday, though the precious metal struggled to build on previous gains, remaining below the multi-day peak reached on Monday. The Federal Reserve’s hawkish signals from last week, indicating a slower pace of interest rate cuts in 2025, have helped the US Dollar (USD) hold firm near a two-year high, creating headwinds for gold. Additionally, a generally positive risk sentiment is capping any significant upside for the yellow metal.
Despite this, geopolitical risks, particularly from the ongoing Russia-Ukraine conflict and tensions in the Middle East, continue to support gold as a safe-haven asset. Market fears over a potential trade war also provide some underlying demand for the precious metal. A modest pullback in US Treasury bond yields has further contributed to a mildly bullish tone for gold, though trading volumes remain low due to the holiday season.
Given the lack of strong follow-through in gold’s recent recovery, investors are advised to wait for further confirmation before betting on additional gains from the one-month low seen last week.
Fed’s Hawkish Outlook Limits Gold’s Upside Potential
Last week, the Federal Reserve signaled a shift in its monetary policy, indicating that the pace of rate cuts would slow in 2025. This shift marks a pivotal change in the Fed’s approach and introduces uncertainty, particularly in light of potential policy adjustments under the incoming Trump administration.
On Monday, the yield on the benchmark 10-year US Treasury bond hit its highest level since May, while the US Dollar remained firm near a two-year peak. These developments are expected to limit any upside for gold, which does not offer yield like bonds or other interest-bearing assets.
Amid these economic factors, geopolitical events are also influencing market sentiment. On Tuesday, the Israel Defense Forces (IDF) reported intercepting a missile fired from Yemen as part of continued military operations in northern Gaza. In Ukraine, Russian forces seized two villages and made progress in the Donetsk region. US President-elect Donald Trump has called for a ceasefire in Ukraine and urged Ukrainian President Volodymyr Zelenskyy to consider negotiations with Russia.
Key Data Releases and Market Outlook
Looking ahead, traders will focus on the release of the Richmond Manufacturing Index, which, alongside US bond yields, is expected to impact the USD and influence gold prices amid relatively thin liquidity on Christmas Eve.
From a technical perspective, the recent bounce from a one-month low has formed a bearish flag pattern on hourly charts. Additionally, daily chart oscillators remain in negative territory, suggesting that the path of least resistance for gold remains downward. A decisive break below the channel support, currently around $2,605-$2,600, could signal further downside, with a potential decline towards last week’s monthly low near $2,583.
A sustained downward move could lead to a test of the November swing low around $2,537-$2,536, followed by a psychological support level at $2,500.
On the upside, the $2,633-$2,634 region, which marks the recent multi-day peak, could act as a key resistance level. A break above this level may trigger short-covering and lift gold towards $2,654-$2,655. A decisive move beyond this resistance could reverse the near-term negative bias, potentially setting the stage for a rally toward $2,700.
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