Gold price forecast: Geopolitical risk weighs on XAU/USD recovery
Gold tests $2,605 resistance as geopolitical tensions rise
Gold (XAU/USD) price has been back and forth, recently recovering from a dip to $2,580 with some support from the 100-day Exponential Moving Average (EMA), only to falter below the key $2,605 mark.
The precious metal is back on its feet during the European session, making another attempt to break through this critical resistance level, which could determine its short-term direction.
Gold price dynamics (September-December 2024). Source: TradingView.
Gold's price action is currently shaped by persistent geopolitical tensions, trade war fears, and the threat of a US government shutdown. These elements have kept investors in a "risk-off" mode, driving demand for safe-haven assets like gold. As global markets shift towards risk aversion, there has been a noticeable pullback in US Treasury yields, which has capped the US Dollar's recent rally to a two-year peak. This, in turn, has provided some support to gold.
However, the bullish sentiment for gold is facing headwinds from the US Federal Reserve's hawkish stance. The central bank's recent signals that it plans to slow the pace of rate cuts in 2025 have supported US Treasury yields, which in turn bolstered the US Dollar. This has kept pressure on gold, a non-yielding asset, limiting its ability to capitalize fully on its recovery. The precious metal was able to briefly rise above $2,600 earlier but couldn't maintain the momentum, and traders are now keeping a close watch on upcoming economic data that could influence the USD, particularly the US Personal Consumption Expenditure (PCE) Price Index, set to release later today.
Technical resistance at $2,650 limits gold momentum
On the technical front, the RSI (Relative Strength Index) on the 4-hour chart has recovered from an oversold condition, currently at 20, signaling that there may be more room for upward movement. However, the 100-day EMA at $2,650 remains a key near-term resistance level, and any further break below $2,605 could pave the way for a potential drop toward the November low at $2,540.
As traders wait for the next catalyst, key economic data is likely to dictate its short-term trajectory. Geopolitical developments, US monetary policy, and market sentiment will also be crucial in determining whether gold can break past resistance and gain momentum or fall back towards lower levels.
The Federal Reserve's decision to cut interest rates by 25 basis points weighed on gold prices. After dropping over 2% to a three-week low, gold prices rebounded above the psychological $2,600 level.
