Gold prices (XAU/USD) have given up much of the gains from earlier in the session, hovering just above $2,660 during the early European trading hours on Tuesday. The precious metal briefly reached a two-week high on Monday but struggled to maintain upward momentum as the US Dollar (USD) regained strength. This rebound in the USD follows a post-NFP bounce from a near one-month low, fueled by expectations that the Federal Reserve (Fed) will adopt a more cautious approach to rate cuts.
Despite the recent pullback, gold’s downside appears limited due to ongoing geopolitical uncertainties and shifting central bank policies. The persistent Russia-Ukraine conflict, political instability in South Korea and France, and the resumption of gold purchases by China’s central bank after a seven-month hiatus are expected to provide support for the safe-haven asset.
Adding to the supportive backdrop, the growing consensus that the Fed may lower borrowing costs later this month could keep US Treasury yields subdued, providing further buoyancy to gold. In particular, concerns over US President-elect Donald Trump’s potential tariff plans are fostering an environment where gold could see significant upside.
Geopolitical Tensions and China’s Gold Purchases Bolster Safe-Haven Appeal
Geopolitical developments have further underpinned demand for gold. Over the weekend, Syrian rebels took control, forcing President Bashar al-Assad to flee to Russia, which escalated tensions in the Middle East and fueled haven flows into gold. Additionally, the People’s Bank of China revealed that it bought 160,000 fine troy ounces of gold in November, marking its first purchase in seven months and providing additional support for the precious metal.
Meanwhile, US President-elect Donald Trump’s pledge to impose significant tariffs on America’s largest trading partners, including Mexico, Canada, and China, as well as a potential 100% tariff on ‘BRICS’ nations, has added uncertainty to global trade relations, further benefiting gold’s appeal as a safe-haven asset.
Fed Rate Cut Expectations and Treasury Yields Weigh on Gold’s Upside Potential
The Federal Reserve remains at the center of market attention, with traders pricing in an 85% chance of a 25 basis-point rate cut at its December policy meeting, according to the CME Group’s FedWatch Tool. Despite some hawkish comments from Fed officials and expectations that Trump’s policies could reignite inflation, the likelihood of a pause in the rate-cutting cycle is keeping US Treasury bond yields elevated. This has lent support to the USD and capped gold’s upside for now.
The key event this week will be Wednesday’s release of the US Consumer Price Index (CPI) for November, which could provide crucial insight into future Fed policy and impact gold prices.
Technical Analysis: Gold Finds Support Above $2,650
From a technical standpoint, gold’s overnight breakout above $2,650 marked a significant milestone, with a daily close above this level offering potential bullish signals. The oscillators on the daily chart are beginning to show positive momentum, suggesting further upward potential for gold. If this strength continues, gold could test the $2,700 mark, with a further push towards the $2,720–$2,722 supply zone a distinct possibility.
On the downside, the $2,650 level, which coincides with the 200-period Exponential Moving Average (EMA) on the 4-hour chart, is now seen as a critical support level. A decisive break below this area could expose further support at $2,625–$2,620, with $2,600 acting as a psychological barrier. A sustained drop below the 100-day Simple Moving Average (SMA) at $2,590–$2,585 would signal deeper losses, potentially pushing gold towards the November swing low near $2,537–$2,536.
Conclusion
While gold prices face some headwinds from a strengthening US Dollar and rising Treasury yields, the ongoing geopolitical tensions, coupled with expectations of a Fed rate cut and supportive central bank policies, suggest that the downside for gold remains limited. Traders will be closely watching upcoming economic data and geopolitical developments to gauge the direction of gold prices in the near term.
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