Gold prices edged lower this week, trading below $2,620 and erasing earlier weekly gains. While geopolitical uncertainties and subdued bond yields provided some support, the metal struggled against a stronger US Dollar (USD) and growing expectations for a less-dovish Federal Reserve (Fed) policy.
This article delves into the technical and fundamental aspects of gold’s current performance, explores its outlook, and examines key market drivers shaping its trajectory.
Technical Analysis: Gold’s Consolidation Phase
Gold’s price action on Friday reflected a consolidation phase as the precious metal hovered near the nine- and 14-day Exponential Moving Averages (EMAs). At $2,631.40 and $2,627.44, respectively, these EMAs acted as immediate support levels, preventing further declines.
The 14-day Relative Strength Index (RSI) remained below the critical 50 mark, signaling a neutral sentiment. A decisive push above this threshold could renew bullish momentum, potentially driving the price towards the psychological resistance level of $2,700.
Should gold break past $2,700, the next target would be its monthly high of $2,726.34. Conversely, a breach below the EMA levels might amplify selling pressure, with $2,583.39—the monthly low—serving as a crucial support zone.
Fundamental Overview: Diverging Forces Impact Gold’s Trajectory
Supportive Factors
-
Geopolitical Uncertainties
Gold’s safe-haven appeal remains bolstered by escalating geopolitical risks. Ongoing tensions, such as the prolonged Russia-Ukraine war and conflicts in the Middle East, have heightened market caution.- On Thursday, Russia's Federal Security Service reported thwarting assassination plots targeting high-ranking officers in Moscow, adding to regional instability.
- In Gaza, Israeli airstrikes killed at least 31 individuals, including five journalists. Conflicting narratives on their affiliations underscore the volatile situation, which continues to attract safe-haven flows into gold.
-
Moderate US Inflation Data
Recent Personal Consumption Expenditures (PCE) data showed moderate inflation, raising expectations of limited Fed rate cuts in the near future. This uncertainty about future monetary policy has reinforced gold’s allure as a hedge against inflation and economic instability. -
Annual Performance and Central Bank Purchases
Gold’s projected 27% annual gain underscores its robust demand, marking its best performance since 2010. Central banks have ramped up purchases, further supporting prices amid escalating uncertainties.
Pressures on Gold
-
US Dollar Strength
The US Dollar Index (DXY) traded above 108.00, close to its highest level since November 2022. A stronger USD typically weighs on dollar-denominated commodities like gold, making them pricier for foreign buyers. -
Fed’s Policy Outlook
Last week, the Federal Reserve adopted a more cautious tone on rate cuts for 2025, reflecting uncertainties in the economic landscape. This pivot has tempered gold’s upside potential, as reduced rate-cut expectations diminish its attractiveness relative to yielding assets. -
Subdued Bond Yields
US Treasury yields offered mixed signals, with 2-year and 10-year yields standing at 4.33% and 4.58%, respectively. Although subdued yields support non-yielding assets like gold, their limited decline failed to spark significant buying interest.
Gold’s Outlook: Key Levels to Watch
Upside Potential
A breakout above $2,700 could open the door for further gains, targeting $2,726.34. This scenario hinges on easing USD strength, heightened geopolitical risks, or favorable economic data supporting safe-haven demand.
Downside Risks
If gold slips below the EMAs at $2,631.40 and $2,627.44, the selling pressure could intensify, pushing prices toward $2,583.39. A stronger USD or hawkish Fed signals could amplify this downside momentum.
Finally..
Gold remains at a crossroads, balancing between supportive geopolitical risks and pressures from a strengthening US Dollar and a cautious Fed outlook. While the precious metal’s long-term prospects remain promising due to robust central bank purchases and geopolitical tensions, near-term volatility will likely persist.
Traders should closely monitor key technical levels and fundamental developments, including Fed policy signals, USD movements, and geopolitical news. As the year nears its end, gold’s impressive annual performance solidifies its status as a resilient asset in uncertain times.