Gold prices (XAU/USD) showed a mild upward bias early Tuesday, holding just above the $2,640 mark during the first half of the European session. Despite geopolitical uncertainties, including the ongoing Russia-Ukraine conflict and tensions in the Middle East, gold has found some support. Additionally, a modest pullback in the US Dollar (USD) has helped buoy the precious metal. However, the Federal Reserve’s hawkish stance continues to prevent significant gains for gold.
The Fed‘s recent indication that it would slow the pace of interest rate cuts in 2025 has dampened gold’s potential for a strong rally. This shift in policy is expected to maintain high US Treasury yields, providing a tailwind for the USD and capping the upside for non-yielding assets like gold. Market participants are also adopting a cautious approach ahead of key data releases, including the FOMC meeting minutes and the crucial US Nonfarm Payrolls (NFP) report, scheduled for later this week.
Geopolitical Risks and Safe-Haven Demand Support Gold
Concerns about US President-elect Donald Trump’s tariff plans and protectionist policies, which could stoke inflation and disrupt global trade, continue to support gold’s status as a safe-haven asset. The ongoing conflict in Ukraine, where Ukrainian forces launched a new offensive in the Kursk region, has further heightened geopolitical risks. Russia’s Defence Ministry reported that up to 340 Ukrainian soldiers were lost in the region during the clash.
Meanwhile, Israel’s military operations in Gaza and Syria have added to tensions in the Middle East, keeping global investors on edge. These developments have provided some support for gold as investors seek the security of the precious metal amid escalating geopolitical risks.
Federal Reserve’s Hawkish Outlook Limits Gold’s Upside
Despite these external pressures, the Federal Reserve’s cautious approach to monetary easing has capped gold’s potential. In December, the Fed’s projections signaled a shift towards a slower pace of rate cuts in 2025, as inflation remains above the central bank’s 2% target. San Francisco Fed President Mary Daly emphasized on Saturday that inflation is still uncomfortably high, while Fed Governor Lisa Cook noted on Monday that the central bank might proceed with greater caution in its rate-cutting strategy, given the resilience of the labor market and persistent inflationary pressures.
This hawkish outlook has led to a rise in the benchmark 10-year US Treasury bond yield, which surged to an eight-month high on Monday. This, in turn, strengthened the USD, further limiting gold’s upside potential.
Market Focus on Key US Data Releases
The market is now focused on the upcoming FOMC meeting minutes, due to be released later this week, as well as the US Nonfarm Payrolls (NFP) report scheduled for Friday. These data points are likely to influence expectations around the Fed’s next steps and, consequently, gold prices.
In addition, the US economic docket for Tuesday includes the ISM Services PMI and JOLTS Job Openings data, which could provide additional market direction during the North American session.
China’s Gold Reserves Slightly Decline
Data released on Tuesday revealed that China’s gold reserves stood at $191.34 billion at the end of December, a slight decline from the previous month’s total of $193.43 billion. This minor reduction in reserves may have an impact on global gold market sentiment, though it is unlikely to shift the overall trend significantly.
Technical Outlook: Gold Faces Resistance Near $2,655
From a technical perspective, gold’s ability to maintain levels above the 100-day Simple Moving Average (SMA) has sparked some caution among bearish traders. Oscillators on the daily chart have recovered from negative territory, suggesting potential for near-term gains. However, any further upside could face resistance in the $2,655-$2,657 range, followed by the $2,665 zone—gold’s recent multi-week high.
If gold can clear the $2,665 resistance, it may continue towards the $2,681-$2,683 zone, with a key psychological level at $2,700 acting as a major target. A break above this level could signal a continuation of gold’s two-week upward trend.
On the downside, support is seen around the 100-day SMA, currently near $2,626, followed by the $2,615-$2,614 region and the $2,600 level. A break below these levels could trigger a more significant decline, with the December swing low of $2,583 acting as a key support area. A drop below this level would open the door for further losses and a shift in market sentiment toward the bearish side.
Related topics:
- India Surpasses China in Gold Purchases, Buying 51% More in Three Months
- Gold Rates Skyrocket in Chennai on Diwali, 24K Gold Exceeds Rs. 81,000 Per 10 Grams
- Gold Price Outlook: XAU/USD Breaks Key Resistance Levels; What’s Next?
