Gold prices (XAU/USD) continue their downward trajectory, failing to sustain momentum above $2,665 and approaching critical support near the $2,630 area. This drop reflects investor anticipation of a hawkish rate cut by the US Federal Reserve (Fed) and strengthening US Treasury yields. The US Dollar (USD) remains firm, further pressuring the precious metal as markets await the Fed’s monetary policy decision.
Hawkish Fed Expectations Drive Gold Lower
Gold’s short-term bearish trend is fueled by expectations that the Fed will deliver a 25-basis point (bps) rate cut on Wednesday but accompany it with a hawkish forward guidance for 2025. According to the CME Group’s FedWatch Tool, futures markets almost fully price this cut while forecasting less than a 30% chance of more than two cuts next year.
Monday’s US S&P Global Purchasing Managers Index (PMI) data bolstered the view of steady economic growth in the fourth quarter. The services sector expanded faster than expected, indicating that the US economy remains on solid footing. Later today, the spotlight shifts to US Retail Sales, projected to grow 0.5% in November, up from 0.4% the previous month. With consumption driving approximately 65% of US Gross Domestic Product (GDP), stronger retail figures would add further support to the USD, weighing on Gold.
Daily Market Movers: Gold Under Pressure
Investor interest in geopolitical tensions, particularly in the Middle East, has temporarily diminished, shifting focus to Fed policy. The combination of rising US Treasury yields and the firm Dollar creates unfavorable conditions for Gold, which is a yield-less asset. Higher yields increase the opportunity cost of holding Gold, accelerating the bearish trend.
Technical Analysis: XAU/USD Approaching Key Support
From a technical perspective, Gold faces significant bearish momentum following its rejection at the $2,720 resistance level last week. The formation of a double top and last Thursday’s bearish engulfing candle signal increased selling pressure. On the 4-hour chart, a negative candle confirms ongoing downside risk, with sellers targeting the $2,630 area, which aligns with the December 9 low.
Should Gold break below $2,630, the next major support lies around $2,610, marking the lows from November 25, 26, and December 6. On the upside, immediate resistances are Monday’s high at $2,665 and Friday’s intra-day level at $2,690.
Key Economic Indicators and Gold’s Outlook
Gold’s performance remains heavily dependent on macroeconomic indicators, particularly US Retail Sales and the Fed’s forward guidance. Strong data will reinforce expectations of a hawkish Fed stance, strengthening the Dollar and pressuring Gold prices further.
Historically, Gold has an inverse correlation with the US Dollar and Treasury yields. A stronger Dollar often pushes Gold lower, as it becomes more expensive for foreign investors. Similarly, rising Treasury yields increase the appeal of yield-bearing assets over Gold, which offers no interest.
Gold and Market Uncertainty
While Gold traditionally serves as a safe-haven asset during geopolitical or economic instability, the current macroeconomic backdrop creates a bearish environment. The potential for higher US interest rates and reduced global uncertainty weighs on Gold’s upside potential. However, risks remain, including prolonged economic instability or renewed geopolitical tensions, which could support Gold’s safe-haven demand.
Bearish Outlook for Gold
Gold’s near-term outlook remains bearish as markets anticipate a hawkish Fed rate cut, stronger US Treasury yields, and robust economic data. With technical indicators pointing to downside targets at $2,630 and $2,610, sellers remain in control. A shift in sentiment could occur only if economic data disappoints or geopolitical uncertainty resurfaces. Until then, Gold’s upside remains limited, constrained by a strong Dollar and rising yields.
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