Gold prices (XAU/USD) experienced minor fluctuations during the early European session on Tuesday, holding steady just above $2,650. The precious metal remains close to a one-week low, reached on Monday, as traders adopt a wait-and-see approach ahead of the Federal Open Market Committee (FOMC) decision on Wednesday. This cautious sentiment has resulted in subdued, range-bound price action for the second consecutive day.
The market’s hesitance stems from uncertainty over the Federal Reserve’s future rate-cut trajectory. Traders are closely monitoring any developments that may provide further insight into the Fed‘s policy direction. This uncertainty has created a hesitant atmosphere in gold trading, with investors refraining from making major directional bets.
At the same time, expectations of a less dovish stance from the Federal Reserve have kept U.S. Treasury bond yields elevated, offering support to the U.S. dollar (USD). A stronger dollar acts as a headwind for gold, which does not yield interest. However, ongoing geopolitical tensions—particularly the protracted Russia-Ukraine conflict and instability in the Middle East—continue to provide a measure of support for gold as a safe-haven asset.
Investors are now awaiting the release of U.S. Retail Sales data later Tuesday for potential short-term trading opportunities. However, all eyes remain on the FOMC meeting on Wednesday, with market participants looking for any signals that could influence the future course of U.S. monetary policy.
Economic Data and Fed Expectations Drive Market Sentiment
Recent U.S. economic data has further fueled expectations that the Fed may adopt a more hawkish stance. Monday’s data revealed that key segments of the U.S. economy grew at their fastest pace in over three years. The S&P Global Flash U.S. Services Purchasing Managers Index (PMI) rose from 56.1 to 58.5 in December, marking the highest level in 38 months. Similarly, the Composite PMI surged from 54.9 in November to 56.6, a 33-month high.
These upbeat figures overshadowed a decline in the Flash U.S. Manufacturing PMI, which fell to a three-month low of 48.3 in December. The data reinforced market expectations that the Federal Reserve will take a less dovish approach in its policy decisions moving forward.
Investors are also factoring in potential inflationary pressures from U.S. President-elect Donald Trump’s policies, which could force the Fed to pause its rate-cutting cycle. This has led to a rise in U.S. government bond yields, with the benchmark 10-year yield reaching its highest level since November 22.
According to the CME Group’s FedWatch Tool, markets are fully pricing in a 25-basis-point rate cut by the Fed on Wednesday, keeping pressure on the U.S. dollar. This has provided some support for gold prices during the Asian session on Tuesday.
Geopolitical Tensions Provide Safe-Haven Support for Gold
On the geopolitical front, the U.S. imposed new sanctions on North Korea and Russia on Monday, targeting Pyongyang’s financial activities and military support for Moscow. In addition, Israel faces heightened tensions, with a ballistic missile attack from Yemen’s Houthi rebels potentially escalating the situation. These developments have added to global uncertainty, reinforcing demand for gold as a hedge against geopolitical risk.
Looking Ahead: Key Technical Levels to Watch
Traders are now eyeing the release of U.S. Retail Sales figures for potential market-moving data. However, the primary focus remains on the outcome of the FOMC meeting on Wednesday.
From a technical standpoint, gold prices are currently supported by the $2,644-$2,643 range, which marks a one-week low touched on Monday. This level is seen as a key support zone, with the next potential support around $2,625. A decisive break below this level could trigger further downside, with $2,614 and $2,600 acting as additional support levels.
On the upside, the $2,664-$2,666 region, which corresponds to the overnight swing high, is expected to act as immediate resistance. A sustained move above this level could pave the way for a test of the $2,677 region, followed by the psychological $2,700 mark. A strong break above this level could lead to further gains, potentially extending toward the monthly swing high at $2,726, above which gold could resume its upward momentum.
As the market prepares for the FOMC meeting, gold traders remain cautious but attentive to any developments that could provide clarity on the Fed’s policy path and influence the direction of the precious metal.
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