Gold (XAU/USD) is treading water on Wednesday, having rebounded slightly from a one-week low the day before. The precious metal remains subdued as the market awaits the outcome of the Federal Reserve’s final meeting of the year with bated breath.
The Fed is widely anticipated to implement a 25 basis points (bps) cut in interest rates. However, the economic projections and the stance on future rate hikes are likely to take on a hawkish tone in the central bank’s forward guidance. This has put gold in a precarious position, as a “hawkish cut” could potentially boost the US Dollar and exert downward pressure on the yellow metal.
Recent US economic data has painted a picture of a robust economy. US Retail Sales, released on Tuesday, showed a 0.7% increase in November, surpassing the upwardly revised 0.5% rise in October and exceeding expectations. Given that consumption makes up over 60% of the US GDP, these figures reinforce the notion of US economic strength even as the global economy experiences a slowdown. Moreover, earlier this week, data indicated an unexpected improvement in services activity, signaling healthy economic growth in the fourth quarter.
Adding to the mix, US President-elect Donald Trump’s forthcoming policies are expected to further stoke inflationary pressures. This has led investors to temper their expectations for monetary easing, which in turn has sparked a sharp rebound in US Treasury yields. As a non-yielding asset, gold has been weighed down by this development.
In the futures markets, there’s almost full pricing in for a 25 bps interest rate cut on Wednesday, according to the CME Group’s FedWatch Tool. However, the likelihood of more than two quarter-percentage cuts in 2025 is less than 30%.
From a technical analysis perspective, gold has managed to find some support at $2,630 and is currently consolidating its recent losses. But the short-term bearish trend persists, with upside attempts being capped below $2,665. Looking at a broader view, the formation of a potential double top at $2,720 hints at the possibility of a deeper correction. Immediate support lies at $2,630 (the December 17 low), and the $2,615 – $2,605 area (the lows of November 25 and 26), which forms the neckline of the double top. Should the price fall below this, the next target would be November’s trough at $2,540. On the upside, resistances are positioned at $2,665 (the December 16 high) and $2,690 (the December 13 high).
As the market awaits the Fed’s decision, gold continues to be vulnerable, with its future movements hanging in the balance depending on the outcome of the meeting and the subsequent market reactions.
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