13 Dec 2024

Gold prices have seen a resurgence in dip-buying, partially recovering from the decline experienced on Thursday. Ongoing geopolitical tensions, concerns regarding trade conflicts, and speculation surrounding potential Federal Reserve rate cuts are contributing positively to the commodity's appeal. However, anticipations of a less accommodative stance from the Federal Reserve, along with high US bond yields, are limiting the upward potential of the precious metal.

Gold price (XAU/USD) maintains a positive intraday trend during the early European session on Friday; however, it lacks significant follow-through buying and remains below the $2,700 threshold. The anticipation that the Federal Reserve (Fed) will take a cautious approach regarding interest rate cuts, particularly as indications suggest that progress in achieving the 2% inflation target has stalled, continues to support elevated US Treasury bond yields. This situation, in turn, helps the US Dollar (USD) to sustain the gains it has accumulated over the past week, reaching a new monthly high and limiting the upward potential for the non-yielding yellow metal.

Nevertheless, ongoing geopolitical uncertainties related to the Russia-Ukraine conflict and tensions in the Middle East, coupled with apprehensions regarding US President-elect Donald Trump's tariff proposals, continue to bolster the safe-haven appeal of Gold. Furthermore, the markets appear to have fully accounted for another interest rate cut by the Fed anticipated next week, which provides additional support to the XAU/USD. In the meantime, traders may choose to adopt a cautious stance and refrain from making aggressive directional bets as they await the highly anticipated two-day FOMC policy meeting commencing next Tuesday.

Gold price bulls appear to be hesitant and are choosing to await indications regarding the Federal Reserve's approach to potential rate cuts.

Ukraine has launched US-supplied missiles, targeting critical locations deep within Russian territory. Concurrently, Russian forces are advancing towards the strategically important eastern Ukrainian city of Pokrovsk following a month of intense conflict.

On Thursday, Israel announced that its military would remain in the Syrian territory it has occupied until a new force is established that meets its security requirements and addresses the power vacuum created by the collapse of the Syrian regime.

This situation represents a notable escalation in geopolitical tensions, prompting some safe-haven investments in gold as market participants speculate on a possible reduction in borrowing costs by the Federal Reserve at the conclusion of the December meeting.

In light of the recent US consumer inflation data released on Wednesday, which did not present any significant positive surprises, the markets appear to have fully anticipated a 25 basis point rate cut by the Federal Reserve in the upcoming week.

Additionally, the US Bureau of Labor Statistics reported on Thursday that the headline Producer Price Index (PPI) increased by 0.4% in November, with the annual rate rising from 2.6% in October to 3% for the reported month.

The core Producer Price Index (PPI) for November experienced a 0.2% increase, resulting in an annual rate of 3.4%, surpassing projections and indicating a stagnation in the efforts to reduce inflation towards the 2% target. This development coincides with anticipations that the expansionary policies of US President Donald Trump will contribute to rising inflation, implying that the Federal Reserve may adopt a more conservative approach regarding interest rate reductions in the future.

The expectation of a less accommodative Federal Reserve continues to elevate US Treasury bond yields and supports the US Dollar in maintaining its weekly gains, reaching a new monthly high, which may limit the performance of the lower-yielding gold. Investors are closely monitoring the upcoming Federal Open Market Committee (FOMC) policy decision next week for insights into the interest rate trajectory in the United States. This decision is likely to influence demand for the US Dollar and provide significant momentum for the XAU/USD pair.

Gold price could weaken further once the $2,675 pivotal support is broken decisively

From a technical perspective, any further strength back above the $2,700 mark is likely to confront resistance near the $2,725-26 region or the monthly high touched on Thursday. The subsequent move up could lift the Gold price to the $2,735 intermediate hurdle en route to the $2,748-2,750 supply zone. The next relevant barrier is pegged near the $2,775 region, above which bulls might aim to challenge the all-time peak, around the $2,800 neighborhood touched in October.

On the flip side, the $2,675-2,674 area now seems to have emerged as an immediate strong support. A convincing break below, however, might prompt some technical selling and pave the way for further losses towards the $2,658-2,656 confluence – comprising 50- and 200-period Simple Moving Averages (SMAs) on the 4-hour chart. The latter should act as a key pivotal point, which if broken decisively could make the Gold price vulnerable to weaken further towards the $2,632-2,630 area en route to the $2,600 round-figure mark.