- Gold edged higher on Tuesday as remarks from Fed officials suggested a possible interest rate cut in December.
- Heightened geopolitical tensions, including conflicts in the Middle East and political turmoil in France, further bolstered gold's appeal as a safe-haven asset.
- On the technical front, XAU/USD may be poised to extend a wave c downward as it nears the completion of a three-wave pattern.
Gold (XAU/USD) climbed into the $2,630 range on Tuesday, buoyed by comments from Federal Reserve (Fed) officials that increased expectations for a potential interest rate cut at the December policy meeting.
Lower interest rates are supportive of gold prices as they reduce the opportunity cost of holding the non-yielding asset.
Geopolitical Risks Boost Safe-Haven Appeal
Geopolitical tensions provided additional support for gold. Ongoing conflicts, including the Middle East crisis now intensified by a civil war in Syria, the Russia-Ukraine conflict, and political instability in France, have driven investors toward gold as a safe haven in times of uncertainty.
Fed Signals Raise Odds of December Rate Cut
Gold advanced on Tuesday following remarks from several Fed officials, hinting at a possible December rate cut.
- Fed Governor Christopher Waller expressed a favorable stance, stating he was “leaning toward supporting a cut in December.”
- New York Fed President John Williams, while cautious, noted that risks to inflation and employment appeared more balanced, suggesting further rate cuts might be necessary. He acknowledged the case for skipping a cut in December but added that current policy is restrictive enough to allow for a cut while maintaining flexibility for slower reductions later.
- Atlanta Fed President Raphael Bostic appeared open to the possibility, emphasizing a shift towards a neutral policy stance given the balanced risks to the labor market and inflation.
These comments, coupled with stronger-than-expected US Purchasing Manager Index (PMI) data for November, raised market expectations for a 25-basis-point rate cut. The CME FedWatch tool now places the probability of such a move at 72.5%, up from the mid-60% range previously.
Technical Analysis: XAU/USD Poised for Potential Downside
Gold remains range-bound, hovering near a major trendline, but technical indicators suggest a bearish outlook may be forming.
XAU/USD appears to be in the final stages of a three-wave Measured Move pattern. A potential downward wave c could extend toward $2,550, mirroring the length of wave a.
A decisive break below $2,605 (the November 26 low) would confirm this bearish move.
The Moving Average Convergence Divergence (MACD) indicator recently crossed below its signal line, entered negative territory, and displayed a shape consistent with further downside potential.
Overall, while gold is supported by dovish Fed commentary and geopolitical uncertainties, technical factors point to the possibility of near-term bearish momentum.
