- Gold price rises for a second consecutive day, supported by haven flows amid geopolitical tensions.
- Expectations of less aggressive Fed rate cuts bolster USD strength, limiting the commodity's upside.
- A prevailing risk-on sentiment advises caution before adopting a bullish stance on XAU/USD.
Gold price (XAU/USD) holds its upward momentum in early European trading, hovering near the $2,620 mark, just below the one-week high reached on Tuesday. Geopolitical tensions, fueled by the prolonged Russia-Ukraine war and ongoing conflicts in the Middle East, continue to drive safe-haven demand for the precious metal for a second consecutive day. However, expectations of less aggressive policy easing by the Federal Reserve (Fed) act as a headwind, limiting further gains for the non-yielding asset.
Market sentiment suggests that President-elect Donald Trump’s expansionary economic policies could reignite inflationary pressures, reducing the likelihood of additional Fed rate cuts. This outlook keeps US Treasury yields elevated and lends support to the US Dollar (USD), which has stabilized after a corrective pullback from last week’s year-to-date high. Additionally, a broadly optimistic mood across global equity markets further constrains Gold’s upside, urging caution before concluding that its recent pullback from record highs has ended.4
Gold Price Gains Amid Geopolitical Tensions, Fed Expectations Limit Upside
- US President Joe Biden's approval for Ukraine to use long-range American missiles against Russian targets has fueled safe-haven demand, boosting Gold prices on Monday.
- A retreat in US Treasury bond yields helped extend the US Dollar's profit-taking slide from its year-to-date high last week, offering additional support to XAU/USD.
- The precious metal sees continued buying interest for a second straight day on Tuesday, though expectations of less aggressive Fed rate cuts act as a cap on further gains.
- President-elect Donald Trump's anticipated focus on tax cuts and tariff hikes could heighten inflationary pressures, potentially restricting the Fed's room to ease monetary policy.
- Recent remarks from Federal Reserve officials, including Chair Jerome Powell, indicate caution regarding rate cuts, strengthening the US Dollar and limiting Gold's upside.
- Tuesday’s US economic calendar includes Building Permits and Housing Starts data, with a speech by Kansas Fed President Jeffrey Schmid expected to provide further USD direction during the US session.
- The spotlight will shift to Friday’s manufacturing and service sector PMI data, which could reveal early business reactions to Trump’s proposed trade policies.
Gold Price Bears Await a Sustained Break Below the $2,600 Level
Gold’s overnight rally was supported by its resilience near the 100-day Simple Moving Average (SMA) last week. This upward momentum has propelled the price beyond the 23.6% Fibonacci retracement level of its recent corrective decline from the all-time high, suggesting the potential for further intraday gains. However, oscillators on the daily chart, while recovering from lower levels, have yet to confirm a definitive bullish bias. As a result, additional upside is likely to encounter strong resistance near the $2,634-$2,635 zone, corresponding to the 38.2% Fibonacci level. A sustained break above this could trigger a short-covering rally, targeting the $2,655-$2,657 range and potentially the $2,664-$2,665 area.
On the downside, the $2,600 level, aligned with the 23.6% Fibonacci retracement, serves as immediate support. A decisive break below this level could expose the next significant support at $2,569-$2,568, followed by a decline toward the 100-day SMA, currently around $2,551-$2,550. Should the price drop below last week’s swing low near $2,536, it could signal a fresh bearish trend, paving the way for a move towards the $2,500 psychological mark.
