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Gold retreats from seven week highs on profit-taking, all eyes on US NFP release

  • Gold price loses ground in Tuesday’s early European session.
  • Progress in Ukraine peace talks and profit-taking weigh on the Gold price, a safe-haven asset.
  • The Fed's official projections indicated only one rate cut next year, but the outlook is highly uncertain.

Gold price (XAU/USD) loses momentum below $4,300 during the early European trading hours on Tuesday, pressured by some profit-taking and weak long liquidation from the shorter-term futures traders. Furthermore, optimism around Ukraine peace talks could weigh on the safe-haven asset like Gold.

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Nonetheless, the potential downside for the yellow metal might be limited as the US Federal Reserve (Fed) implemented its third cut of the year last week and signaled additional rate reduction in 2026. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal. Nonetheless, optimism around Ukraine peace talks might cap the upside for the Gold price by reducing safe-haven demand.  

The US government shutdown has delayed the publication of a collection of US economic data, which will be released later on Tuesday. The US Nonfarm Payrolls (NFP) report will take center stage. This report could give more clues about the US interest rate path. If the data point to a slowdown in the US labor market, this would reinforce expectations of Fed rate cuts and boost the yellow metal. Also, the US Retail Sales and Purchasing Managers Index (PMI) will be published. 

Daily Digest Market Movers: Gold declines despite the prospect of further Fed rate cuts

  • US officials said on Monday that an agreement with Ukrainian President Volodymyr Zelenskyy to end the war with Russia was nearly complete, although territorial disputes remain unresolved and a strong security guarantee from the US and European countries remains a sticking point.
  • New York Fed President John Williams said on Monday that monetary policy is well-positioned for next year following last week’s rate reduction, amid elevated risks to employment and somewhat-reduced inflation risk, per Bloomberg. 
  • Fed Governor Stephen Miran reiterated his view that current policy remains overly restrictive. He added that he’ll likely remain at the central bank after his term expires, until a new appointee is confirmed to fill his seat.
  • According to the Summary of Economic Projections (SEP), or so-called “dot plot,” the median forecast points to only one 25-basis-point (bps) rate cut by the end of 2026. However, financial markets are generally pricing in the probability of at least two rate reductions by the year-end.
  • Fed funds futures are pricing an implied 75.6% odds of a hold in rates at the Fed's January meeting, unchanged from a day earlier, according to the CME Group's FedWatch tool.

Gold holds a long-term uptrend technical setup

Gold price edges lower on the day. According to the four-hour timeframe, the constructive outlook of the precious metal prevails. Note that the price is well-supported above the key 100-day Exponential Moving Average, suggesting that the path of least resistance is to the upside. Additionally, the Bollinger Bands widen and the 14-day Relative Strength Index (RSI) stands above the midline near 60.0, reflecting strengthening bullish momentum in the near term. 

On the upside, the immediate resistance level emerges at the December 15 high of $4,350. A continuation of the rally could take XAU/USD up to $4,365, the upper boundary of the Bollinger Band. Further north, the next hurdle to watch is an all-time high of $4,381.

On the flip side, the first support level for the yellow metal is seen at the December 15 low of $4,285. Any follow-through selling could open the door for a move near the low of December 12 at $4,257. If sellers keep drawing in bearish pressure, the yellow metal could visit $4,210, the 100-day EMA.

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

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Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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