Gold prices have continued to experience downward pressure despite a rise in safe-haven demand, as traders await key signals regarding the U.S. economy and Federal Reserve (Fed) policy outlook.
Gold, a non-yielding asset, has found support amid expectations of further rate cuts by the Federal Reserve following the release of the U.S. Personal Consumption Expenditures (PCE) inflation data. However, the precious metal remains under pressure as it edges lower, trading near $2,630 during the Asian session on Friday. This dip comes amid thin trading conditions following the Christmas holiday, but geopolitical tensions and expectations regarding the U.S. economic outlook could provide upward momentum for gold.
Geopolitical Risks and U.S. Economic Data Support Gold
The precious metal’s appeal as a safe-haven asset is bolstered by rising geopolitical risks, including the ongoing Russia-Ukraine conflict and tensions in the Middle East. Moreover, gold prices have gained traction as moderate U.S. PCE inflation data has challenged earlier expectations that the Fed would implement only limited rate cuts in 2025, hinting at the possibility of further reductions.
Gold is poised to close the year with a 27% gain, its best annual performance since 2010. The surge in gold prices has been driven by a combination of central bank purchases, heightened geopolitical uncertainties, and easing monetary policies from major central banks.
U.S. Dollar Strength Limits Gold’s Upside Potential
Despite gold’s safe-haven status, the U.S. dollar’s strength continues to put pressure on the precious metal. The U.S. Dollar Index (DXY), which measures the dollar against six major currencies, is trading above 108.00, just below its highest level since November 2022. A stronger U.S. dollar makes dollar-denominated assets like gold more expensive for holders of other currencies, potentially limiting gold’s upside.
However, gold may find support from subdued U.S. Treasury bond yields. As of Friday, the 2-year and 10-year U.S. Treasury yields stand at 4.33% and 4.58%, respectively, providing some cushion for the yellow metal.
Geopolitical Tensions Add to Gold’s Safe-Haven Appeal
Global geopolitical tensions have also added to gold’s appeal as a safe-haven asset. On Thursday, Russia’s Federal Security Service reported that it had thwarted several assassination attempts by Ukrainian intelligence, which were allegedly targeting high-ranking Russian officers. In Gaza, authorities reported the deaths of five Palestinian journalists due to Israeli airstrikes, further escalating regional tensions.
Despite these developments, the Federal Reserve’s shift toward a more cautious outlook on interest rate cuts in 2025 has contributed to market uncertainty. This policy stance, combined with the anticipated economic strategies of the incoming Trump administration, has left investors uncertain about the future trajectory of U.S. monetary policy.
Gold’s Technical Outlook: Consolidation and Support Levels
Gold continues to trade above $2,630, reflecting a consolidation phase as the metal moves sideways, testing the 9- and 14-day Exponential Moving Averages (EMAs). The 14-day Relative Strength Index (RSI) hovers just below the 50 mark, indicating a neutral market sentiment. A decisive move above the 50 mark could signal renewed buying interest.
On the upside, gold may target the psychological level of $2,700, with the next resistance at its monthly high of $2,726.34. On the downside, immediate support for gold is seen at the 14- and 9-day EMAs, located at $2,631.40 and $2,627.44, respectively. A break below these levels could increase selling pressure, pushing gold toward its monthly low of $2,583.39.
As market participants await further clues regarding the U.S. economy and Federal Reserve policy, gold’s safe-haven appeal, coupled with ongoing geopolitical risks, could continue to influence its price action in the coming weeks.
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