Despite rising geopolitical tensions, gold prices have been lacking bullish conviction, according to experts.
Prices were little changed on Monday as the market tread cautiously in the wake of the Federal Reserve’s hawkish comments for 2025.
Last week, prices had fallen sharply after the US Fed’s policy meeting, in which the central bank had signalled a slowdown in its rate-cutting cycle.
However, slightly softer inflation data from the US limited losses in gold prices.
The yellow metal had shed 1% last week after Fed officials projected fewer rate cuts in 2025 because of sticky inflation in the country. This had boosted the dollar and yields on Treasury bonds.
“Given all the market shenanigans in the wake of last night’s Fed announcement, gold was never going to come out unscathed,” said David Morrison, senior market analyst at Trade Nation.
The Fed’s declaration of a hawkish shift in rate cut expectations next year led to a significant ‘risk off’ move from speculators.
Softer PCE data
However, the core personal consumption expenditure index, which excludes volatile food and energy prices, rose 2.8% in November, below the expectation of 2.9%.
Furthermore, personal income decelerated sharply from 0.7% in October and grew 0.3% last month.
The annual PCE index rose to 2.4% in November compared with estimates of 2.5%. The index rose by 0.1% in November, slightly lower than the October’s increase of 0.2%.
This provided some relief to gold prices as softer inflation could prompt the Fed to change its projection and cut interest rates more next year.
Geopolitical tensions
Russian President Vladimir Putin has pledged retaliation after Ukraine staged a major drone attack on the city of Kazan, which damaged residential buildings and shut down the airport.
Meanwhile, Israeli forces bombed the so-called “safe zone” in southern Gaza, causing tents to go up in flames and killing at least seven Palestinians, taking the death toll over the past day to at least 50.
“The US Dollar (USD) bulls remain on the defensive below a two-year high touched on Friday and turn out to be a key factor acting as a tailwind for the commodity, Haresh Menghani, editor at FXstreet, said in a report.
“Apart from this, geopolitical risks stemming from the protracted Russia-Ukraine war and tensions in the Middle East further lend support to the safe-haven precious metal.”
Cautious approach by traders
The Fed’s hawkish tone for next year boosted the dollar last week.
On Friday, the dollar had hit a two-year high and is currently hovering near that level.
Higher interest rates make the greenback more attractive due to increased returns on dollar-denominated assets.
A stronger dollar weighs on commodities such as gold as it makes the precious metal more expensive for overseas buyers.
Furthermore, the Fed’s hawkish tone remained supportive of elevated US Treasury bond yields.
“This, along with a generally positive tone around the equity markets, seems to cap gains for the non-yielding yellow metal,” Menghani added.
He noted:
Hence, it will be prudent to wait for strong follow-through buying before positioning for any further appreciating move.
The market will now wait for the release of the Conference Board’s Consumer Confidence index for further cues.
Gold’s technical indicators
Gold prices have surpassed the immediate hurdle of $2,637 per ounce. The next resistance remains at $2,647 an ounce, which coincides with the downward-sloping 200-period simple moving average.
“The latter should act as a key pivotal point, which if cleared decisively, should pave the way for a further appreciating move,” Menghani said.
On the lower side, the $2,616-$2,615 per ounce are the immediate support for prices.
If prices fall below this level, then the next support remains at the $2,600 per ounce level.
“Some follow-through selling will be seen as a fresh trigger for bears and set the stage for deeper losses in the near term,” Menghani said.
At the time of writing, the February gold contract on COMEX was at $2,646.21 per ounce, largely unchanged from the previous session.
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