07 Jan 2025

Gold prices are drawing safe-haven investments due to concerns regarding Trump's tariff proposals. However, the Federal Reserve's aggressive stance and high US bond yields are limiting the upward movement of XAU/USD. Traders appear hesitant as they await the release of the FOMC minutes and the US Non-Farm Payroll data later this week.

Gold prices (XAU/USD) continue to build on the rebound observed from the $2,615-2,614 range, gaining some upward momentum during the Asian trading session on Tuesday, although it lacks significant follow-through. The anticipation that US President-elect Donald Trump's proposed tariffs and protectionist measures may reignite inflation appears to enhance the commodity's appeal as a safeguard against rising prices. Additionally, ongoing geopolitical uncertainties related to the prolonged Russia-Ukraine conflict and tensions in the Middle East are driving safe-haven investments towards the precious metal.

However, the Federal Reserve's (Fed) indication of a more cautious approach to rate cuts in 2025, which supports high US Treasury bond yields, poses a challenge for the non-yielding gold prices. Furthermore, the recent trend of US Dollar (USD) dip-buying is also limiting the potential gains for the yellow metal. Market participants seem hesitant to make bold directional moves in anticipation of the upcoming release of the FOMC meeting minutes and the important US Nonfarm Payrolls (NFP) report scheduled for Wednesday and Friday, respectively.

Gold price struggles to capitalize on modest uptick amid Fed's hawkish stance, elevated US bond yields.

US President-elect Donald Trump's suggested tariffs and protectionist measures are anticipated to exacerbate inflation and disrupt international trade, thereby bolstering the price of safe-haven Gold.

On Sunday, the Ukrainian military initiated a new offensive in the Kursk region of western Russia. According to Russia’s Defence Ministry, Ukraine suffered losses of up to 340 soldiers in this area.

As Israel continues its intense bombardment of Gaza, the Israeli military announced on Sunday that it has been conducting operational raids in Syria, amidst allegations of violations of the cease-fire.

The Federal Reserve's forecasts from December indicated a transition to a more cautious approach regarding rate cuts in 2025, with most policymakers expressing apprehension that inflation may resurge.

San Francisco Fed President Mary Daly remarked on Saturday that, despite notable advancements in reducing price pressures over the past two years, inflation still remains uncomfortably above the 2% target.

Additionally, Fed Governor Lisa Cook stated on Monday that policymakers might adopt a more cautious stance on further interest rate reductions, pointing to the resilience of the labor market and persistent inflationary pressures.

On Monday, the yield on the benchmark 10-year US government bond reached its highest level in over eight months, which helped the US Dollar attract some dip-buying on Tuesday, thereby limiting the XAU/USD.

This week, market attention is primarily directed towards the upcoming release of the FOMC meeting minutes and the highly anticipated US Nonfarm Payrolls (NFP) report, scheduled for Wednesday and Friday, respectively.

Meanwhile, Tuesday's US economic calendar, which includes the ISM Services PMI and JOLTS Job Openings data, may provide some momentum later in the North American trading session

Gold price needs to clear the $2,655-2,657 horizontal barrier for bulls to seize near-term control

From a technical perspective, the overnight resilience above the 100-day Simple Moving Average (SMA) and the subsequent bounce warrants some caution for bearish traders. Moreover, oscillators on the daily chart have recovered from negative territory, which, in turn, supports prospects for some near-term upside. Any further move up, however, is likely to confront some resistance near the $2,655-2,657 horizontal zone ahead of the $2,665 area, or the multi-week high touched last Friday. The momentum could extend further towards an intermediate resistance near the $2,681-2,683 zone en route to the $2,700 mark. The latter should act as a pivotal point, which if cleared will set the stage for an extension of a two-week-old uptrend.

On the flip side, the 100-day SMA, currently pegged near the $2,626 area, followed by the overnight swing low, around the $2,615-2,614 region, and the $2,600 mark could offer some support to the Gold price. This is followed by the December swing low, around the $2,583 area, which if broken will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.