Gold holds steady ahead of Fed, will we see a breakout?

Gold is holding around the $2,648 level,  as traders exercise caution ahead of the federal reserve’s final policy meeting of the year. After rebounding modestly from a one-week low near $2,633, the yellow metal remains range-bound, struggling to gain traction amid market uncertainty. With the Fed widely expected to cut interest rates by 25 basis points, all eyes are now on the central bank’s long-term rate outlook and its updated economic projections, which will likely set the tone for gold’s next move.

Economic pressures keep gold in check

Despite its safe-haven appeal, gold has been under pressure from elevated US Treasury yields and a resilient US dollar. The benchmark 10-year Treasury yield has climbed to its highest level since late November, reflecting strong underlying economic momentum. 

10-year treasury yields

Source: CNBC

Higher yields pose a direct challenge to gold, a non-yielding asset, by increasing the opportunity cost of holding it. Meanwhile, the US Dollar Index remains near a three-week high, further weighing on gold prices by making the metal more expensive for foreign buyers.

Adding to the pressure is a string of robust US economic data. Retail sales in November rose by 0.7%, exceeding expectations of a 0.5% increase and October’s 0.4% gain. This stronger-than-expected consumer spending highlights the resilience of the US economy, which has also been supported by persistently warm inflation readings in recent months. The combination of these factors has raised speculation that the Fed could pause its rate-cutting cycle as early as January, capping gold’s upside potential.

Geopolitical tensions lend support

While economic forces are weighing on gold, geopolitical risks continue to provide a floor for prices. The ongoing Russia-Ukraine conflict remains a significant source of uncertainty, with tensions escalating following reports of an attack in Moscow that killed a senior Russian military official. In the Middle East, instability persists, with fears of broader regional conflict adding to global unease. 

Additionally, renewed concerns about a trade war have further underscored the demand for gold as a safe-haven asset. These geopolitical factors have balanced some of the downward pressure on gold, preventing a sharper decline despite the challenging macroeconomic environment. Investors remain cautious, hedging against the risks of potential escalations in global tensions.

The Fed’s decision: A defining moment for Gold

The Federal Reserve’s upcoming decision will be pivotal in determining gold’s trajectory. While a 25 basis-point rate cut is almost certain, the accompanying policy statement, economic projections, and Fed Chair Jerome Powell’s comments will carry significant weight. Of particular interest is the dot plot, which provides insight into policymakers’ expectations for future rate changes. A hawkish tone from Powell, signalling a slower or more cautious approach to further rate cuts, could exert additional pressure on gold. Conversely, a dovish pivot might renew interest in the metal, pushing prices higher.

Technical outlook: Significant break-out incoming?

As traders wait for clarity, gold prices are likely to remain range-bound, caught between economic resilience and geopolitical risks. The outcome of today’s Fed meeting will not only shape the near-term direction of gold but also set the stage for its movement into 2025. For now, the market remains in a state of flux, reflecting the broader uncertainty gripping financial markets.

Gold is currently hovering around $2,648 with bullish signals evident, this is supported by prices staying above the 100-day moving average. Buyers could be held at the $2,683 and $2,720 price levels, while on the downside sellers could be held at the $2,614 and $2,592 price levels.

Source: Deriv X trading view

Disclaimer:

The information contained within this article is for educational purposes only and is not intended as financial or investment advice. It is considered accurate and correct at the date of publication. Changes in circumstances after the time of publication may impact the accuracy of the information.

The current performance figures quoted are only estimates and may not be a reliable indicator of future performance. The past performance figures quoted refer to the past and are not a guarantee of future performance or a reliable guide to future performance. 

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