Gold Price Forecast: $4,250 acts as a tough nut to crack for XAU/USD buyers
- Gold sees some volatility around the $4,200 mark early Tuesday, reversing Monday’s gains.
- US Dollar finds its feet amid higher Treasury bond yields as traders assess Fed policy moves.
- Sellers return as Gold settled Monday below the key $4,250 hurdle, what’s next?
Gold is on a retreat from six-week highs of $4,265 reached on Monday, experiencing some volatility around the $4,200 threshold early Tuesday.
Gold down but not out yet
Despite the ongoing pullback, Gold has managed to find fresh buyers in the $4,200 region, as concerns over the health of the United States (US) economy continue to make the case for an interest rate cut by the Federal Reserve (Fed) next week.
Data released on Monday showed US manufacturing contracted for the ninth straight month in November, as the Institute for Supply Management's (ISM) PMI dropped to 48.2 in November from 48.7 a month earlier. The market expectation was 48.6.
Markets keep predicting an 87% chance that the Fed will cut by 25 basis points (bps) at its December monetary policy meeting, according to the CME FedWatch tool.
Further, the downside in Gold remains cushioned by growing nervousness over rising Japanese bond yields.
Japanese 30-year government bond yields climbed to a record peak and the 10-year yield reached a 17-year high amid growing speculation that the Bank of Japan (BoJ) could raise rates as soon as this month.
On Monday, Gold failed to sustain at six-week highs and retraced sharply, courtesy of the resurgence in the US Treasury bond yields as markets began assessing the Fed's monetary policy moves beyond the December meeting.
Markets also remain wary of the likely dissents within the Fed at next week’s monetary policy meeting, which could restrict Gold price action.
Attention now turns to Wednesday’s monthly US ADP Employment Change data and the ISM Services PMI for fresh trading incentives. In the meantime, the sentiment around the Fed expectations and on global stocks will continue to drive Gold.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,216.92. The 21-day Simple Moving Average (SMA) climbs above the 50-, 100- and 200-day SMAs, with all trending higher and price holding above them. This alignment underscores persistent bullish momentum, with the 21-day SMA near $4,104.27 offering nearby dynamic support. The 50-day SMA at $4,049.55 reinforces the floor beneath the market.
The Relative Strength Index (14) stands at 62, positive though off recent peaks. The immediate point of contention for buyers is the $4,250 psychological barrier, which needs to be cleared on a daily closing basis.
Fibonacci retracements measured from the $4,381.17 high to the $3,885.84 low show the 61.8% retracement at $4,191.95 now behind price, while the 78.6% retracement at $4,275.16 caps the advance. A daily close above that retracement would open the door to further upside, while pullbacks could lean on the rising 21-day SMA near $4,104.27 to preserve the bullish bias.
(The technical analysis of this story was written with the help of an AI tool)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
