18 Dec 2024

• Gold price lacks any firm intraday direction and oscillates in a narrow band on Tuesday. 
• Bets for a less dovish Fed, elevated US bond yields and a bullish USD cap the XAU/USD. 
• Traders keenly await the FOMC policy decision to determine the near-term trajectory.
• Gold prices (XAU/USD) continue to exhibit weakness during the initial part of the European trading session on Wednesday. However, there has been no significant follow-through in selling, and prices have managed to stay above the one-week low reached the previous day. The outlook for a less dovish stance from the Federal Reserve (Fed) continues to bolster high US Treasury bond yields, which poses a challenge for the non-yielding yellow metal. Nevertheless, US Dollar (USD) bulls appear hesitant to make substantial investments, choosing instead to await the important FOMC decision.
• Investors will scrutinize the updated economic projections, including the so-called dot plot, and fed Chair Jerome Powell's remarks at the post-meeting press conference for cues about the future rate-cut path. This, in turn, will influence the USD and provide some meaningful impetus to the Gold price. Heading into the key central bank event risk, the cautious market mood, along with persistent geopolitical risks and trade war fears, should help limit the downside for the safe-haven XAU/USD.

• Gold price struggles to attract buyers amid expectations for less dovish Fed

  The US Census Bureau announced on Tuesday that retail sales experienced a notable increase of 0.7% in November, surpassing market expectations of a 0.5% rise and the previous month's increase of 0.4%. This data reflects a strong underlying momentum within the economy; however, it had minimal influence on expectations regarding a potential interest rate cut by the Federal Reserve following its two-day meeting on Wednesday. The sustained consumer spending, coupled with the resilience of the US economy and recent favorable inflation figures, indicates that the Fed may consider pausing its rate-cutting strategy during the January meeting. The anticipation of a less accommodative Federal Reserve has driven the yield on the benchmark 10-year US government bond to its highest level since November 22, which may pose challenges for the non-yielding gold price.
  
  In other developments, Ukraine reported a blast in Moscow that resulted in the death of Igor Kirillov, the head of the Russian military’s nuclear and chemical weapons protection forces, heightening the risk of escalating tensions. The UN’s special envoy for Syria cautioned that the conflict persists despite the removal of President Bashar al-Assad, as clashes continue between Turkish-backed and Kurdish factions in the north. Additionally, a Palestinian official involved in indirect negotiations indicated that there are emerging signs suggesting that Israel and Hamas may be nearing an agreement on a ceasefire and hostage release in Gaza after a prolonged stalemate.
  
  On Wednesday, the US economic calendar will include the release of housing market data, specifically Building Permits and Housing Starts. Nevertheless, the primary focus will remain on the critical FOMC monetary policy decision. Investors will also be keenly observing the updated economic projections and remarks from Fed Chair Jerome Powell for insights into the future trajectory of interest rates, which will influence demand for the US Dollar.
  

  Gold price needs to break below $2,600 for bears to seize near-term control

  From a technical standpoint, any potential upward movement may encounter resistance near the weekly high, specifically in the $2,664-2,666 range reached on Monday, prior to approaching the $2,677 level. A sustained advance beyond this point could enable the Gold price to reclaim the $2,700 milestone. Further upward movement may extend towards the monthly swing high, situated around the $2,726 area, beyond which the XAU/USD is expected to continue its upward trend.
  
  Conversely, the overnight swing low, located around the $2,633 level, appears to safeguard the immediate downside ahead of the monthly low, approximately at the $2,614 mark. This is closely followed by the $2,600 threshold, which, if decisively breached, would be interpreted as a new signal for bearish traders, potentially rendering the Gold price susceptible to a continuation of its recent sharp decline from the over one-month peak achieved last week.