Gold prices (XAU/USD) edged lower on Friday, trading near $2,630 during the Asian session, as markets experienced thin trading following the Christmas holiday. Despite this dip, the precious metal is expected to find upward support in the coming weeks, driven by uncertainty surrounding the U.S. economy under the incoming Trump administration and the Federal Reserve’s (Fed) interest rate outlook for 2025.
As a non-yielding asset, gold’s appeal increases when U.S. economic data, such as the moderate Personal Consumption Expenditures (PCE) inflation report, challenges expectations of limited rate cuts by the Fed next year. This could signal further reductions in interest rates, which may support gold’s safe-haven status. The metal’s demand is further buoyed by escalating geopolitical tensions, particularly the prolonged Russia-Ukraine conflict and ongoing unrest in the Middle East.
The precious metal is set to close the year with a 27% gain, marking its best annual performance since 2010. This surge has been largely driven by central bank purchases, rising geopolitical risks, and monetary easing from major global central banks.
Stronger U.S. Dollar Weighs on Gold Prices
Meanwhile, the U.S. Dollar Index (DXY), which tracks the dollar against six major currencies, is trading just above 108.00, slightly below its highest point since November 2022. A further strengthening of the U.S. dollar could limit the upside potential of dollar-denominated assets like gold, as a stronger dollar makes these commodities more expensive for foreign buyers.
However, gold may find support from subdued U.S. Treasury yields, which remain relatively low. At the time of writing, the 2-year and 10-year U.S. Treasury yields stand at 4.33% and 4.58%, respectively.
Geopolitical Risks Intensify Demand for Safe-Haven Assets
Gold’s safe-haven appeal is amplified by heightened geopolitical risks. On Thursday, Russia’s Federal Security Service announced the disruption of multiple assassination attempts by Ukrainian intelligence targeting high-ranking Russian officers and their families in Moscow. According to Reuters, the plots involved bombs disguised as power banks or document folders.
Simultaneously, Gaza authorities reported that five Palestinian journalists were killed in an Israeli airstrike, though the Israeli military claimed the individuals were members of Islamic Jihad posing as media workers. Medics confirmed that these fatalities were part of a larger toll, with at least 31 people killed in Israeli airstrikes across Gaza.
Fed Signals Caution on Future Rate Cuts
The Federal Reserve’s cautious stance on future interest rate cuts also plays a role in gold’s price movements. Last week, the central bank indicated a more reserved outlook for 2025, marking a shift in its monetary policy strategy. This change, coupled with the anticipated economic policies under the incoming Trump administration, adds an element of uncertainty, which could further support gold’s role as a safe-haven asset.
Gold Price Outlook: Key Levels to Watch
As of Friday, gold is consolidating above $2,630, with technical indicators pointing to a neutral market sentiment. The 14-day Relative Strength Index (RSI) is just below the 50 mark, suggesting a lack of strong directional momentum. A move above this level could signal increased buying interest.
To the upside, gold may target the psychological level of $2,700, with the next resistance at the monthly high of $2,726.34. On the downside, immediate support is seen at the 14- and 9-day Exponential Moving Averages (EMAs) at $2,631.40 and $2,627.44, respectively. A break below these levels could push gold toward its monthly low of $2,583.39.
In conclusion, while gold faces some downward pressure from a stronger U.S. dollar, its safe-haven appeal remains strong due to global economic uncertainties and ongoing geopolitical tensions. Market participants will be watching closely for signals from the U.S. economy and the Federal Reserve as they look for potential opportunities in the precious metal.
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