Gold Price Surrenders Major Part of Intraday Gains; Downside Potential Seems Limited

Gold Price Surrenders Major Part of Intraday Gains; Downside Potential Seems Limited

NEWS | 12/13/2024 08:22:57 GMT | By Haresh Menghani

Gold prices (XAU/USD) struggled to hold on to their modest intraday gains during the first half of the European session on Friday. The precious metal retreated to the lower end of the daily trading range, pressured by expectations of a cautious Federal Reserve (Fed) stance and elevated US Treasury bond yields, which continue to support the US Dollar (USD).

Despite these headwinds, downside potential for gold appears limited, with traders treading cautiously ahead of next week’s pivotal Federal Open Market Committee (FOMC) policy meeting. Geopolitical tensions and safe-haven demand provide additional support for the yellow metal.

Key Factors Influencing Gold Prices

Fed Rate Expectations and US Bond Yields

Market participants are increasingly convinced that the Fed will adopt a cautious stance on rate cuts, as recent data indicates stalled progress toward the Fed’s 2% inflation target. This has resulted in elevated US Treasury bond yields and strengthened the USD, which typically weighs on non-yielding assets like gold.

• US PPI Data:

  • November’s Producer Price Index (PPI) rose 0.4% month-on-month, with an annual increase of 3.0% (vs. 2.6% expected).

  • Core PPI climbed 3.4% annually, beating market expectations of 3.2%.

The robust data highlights inflationary pressures, reinforcing the Fed’s cautious outlook on further rate cuts, which continues to limit gold’s upside.

Geopolitical Risks and Safe-Haven Demand

Escalating geopolitical tensions offer some respite to gold’s price action, as investors seek safety amid global uncertainties:

1. Russia-Ukraine War:

   • Ukraine launched US-supplied missiles targeting key Russian sites, while Russian forces advanced near Pokrovsk after prolonged fighting.

2. Middle East Tensions:

   • Israel announced its military presence in Syrian territory would remain until security demands are met, signaling heightened instability in the region.

These developments add complexity to global risk sentiment and support gold’s safe-haven appeal.

Technical Analysis: XAU/USD

Key Resistance Levels:

• $2,700: Immediate psychological barrier.

• $2,725-26: Monthly high resistance zone.

• $2,748-50: Supply zone, marking the next major hurdle.

• $2,775-2,800: Long-term target, with $2,800 representing the all-time high.

Key Support Levels:

• $2,675-74: Immediate strong support.

• $2,658-56: Confluence of 50- and 200-period SMAs on the 4-hour chart.

• $2,630-32: Secondary support zone.

• $2,600: Psychological round figure and critical pivot.

A decisive break below $2,675 could trigger additional technical selling, potentially opening the door for further downside toward $2,600. Conversely, sustained strength above $2,700 could pave the way for a rally targeting $2,750 and beyond.

Outlook and Upcoming Events

In the absence of fresh economic data on Friday, market focus will shift to the upcoming FOMC policy decision. Any updates on the US-China trade situation or geopolitical risks could also influence gold prices. Traders are likely to maintain cautious positioning as they await clarity on the Fed’s next moves.