Gold price struggles near 1-week low amid geopolitical risks and Fed slowdown
Gold holds steady near one-week low as Fed rate-cut expectations weigh
Gold prices (XAU/USD) have remained relatively stable in recent sessions, trading near a one-week low. As we head into the European session, price volatility remains muted, due to the market caught between conflicting forces.
Despite support from geopolitical tensions and a slight pullback in U.S. Treasury yields, growing expectations that the Federal Reserve will slow the pace of its rate-cutting cycle weigh on the non-yielding yellow metal.
For gold, the headwind primarily stems from the Federal Reserve’s stance. Recent signs suggest that inflationary pressures are stalling, leaving the central bank on track to moderate its rate-cut cycle. This shift in Fed expectations has curbed demand for gold as an inflation hedge, diminishing the metal’s appeal. As a result, gold struggles to find clear upward momentum despite several supportive factors.
However, gold’s decline is not without limits. A modest downtick in U.S. Treasury yields has caused the U.S. dollar (USD) bulls to ease, offering some support to gold prices. In addition, persistent geopolitical uncertainties, particularly regarding U.S. President-elect Donald Trump's policies, continue to weigh on market sentiment, keeping the downside for gold in check. Investors are also hesitant to take strong positions ahead of the upcoming FOMC meeting on Wednesday, where further clarity on the Fed’s rate-cut path will likely set the tone for the next phase of price action.
Gold price outlook: Support at $2600 remains despite Fed rate-cut concerns
Gold price dynamics (November-December 2024). Source: TradingView.
Technically, gold prices are currently trading close to the $2600 support level, a crucial threshold that has held since November. This level has proven resilient, even as the metal faces pressure from the shifting Fed expectations. Gold’s recent price action also shows a decline from its recent highs, with the price dropping around 3% from the $2720 resistance level, which formed a double top. A further fall below the 100 EMA raises the possibility of additional downside, but the $2600 support remains a key area to watch.
In conclusion, while gold faces headwinds from the Fed’s likely moderation in rate cuts, it finds some support in a combination of geopolitical risks and softer Treasury yields.
Gold’s four-day rally came to a halt, following the stronger-than-expected U.S. Producer Price Index (PPI). Prices fell 1.8% after encountering resistance at $2,720, where a double top formation emerged.
