• Gold price edges higher on Tuesday, albeit lacking strong follow-through buying.
  • Geopolitical tensions and trade war fears lend support to the safe-haven XAU/USD.
  • The Fed’s hawkish shift acts as a tailwind for the USD and caps the precious metal.

On Tuesday, the gold price (XAU/USD) was unable to capitalise on its modest intraday gains and remains below a multi-day high that was established the previous day, amidst a blend of fundamental cues. The safe-haven precious metal continues to receive some support from geopolitical risks associated with the protracted Russia-Ukraine conflict, tensions in the Middle East, and trade war fears. However, the commodity remains under control due to the Federal Reserve's (Fed) hawkish stance.

The US central bank indicated last week that it would reduce the frequency of interest rate reductions in 2025. The US Dollar (USD) is expected to maintain its stability near a two-year high and limit the non-yielding Gold price, as the outlook remains favourable for elevated US Treasury bond yields. This suggests that it is advisable to delay positioning for an extension of the recovery from the one-month low reached last week amid thin trading volumes until there is some follow-through purchasing.

Despite the Federal Reserve's hawkish outlook, gold price supporters appear to be uncommitted.

·         The Federal Reserve last week moderated its projections for additional rate cuts in 2025, thereby highlighting the uncertainties surrounding potential policy changes under the incoming Trump administration and marking a significant turning point in its monetary policy.

·         On Monday, the yield on the benchmark 10-year US government bond reached its highest level since May, and the US Dollar remained steadfast near the two-year peak it reached last week. This should limit the upside potential of the non-yielding Gold price.

·         This Tuesday, the Israel Defence Forces (IDF) reported that sirens were activated in the central and southern regions of Israel and that a projectile launched from Yemen was intercepted as Israeli forces continued their assaults on the besieged northern Gaza.

·         Two villages in Ukraine were seized by Russian forces, and they are making consistent progress in the Donetsk region. US President-elect Donald Trump encouraged Ukrainian President Volodymyr Zelenskyy to abandon Russian-occupied territories and contemplate a ceasefire.

·         Traders are anticipating the publication of the Richmond Manufacturing Index, which, in conjunction with the US bond yields, will impact the USD and provide some momentum during the relatively low liquidity on Christmas Eve.

The gold price appears to be at risk; a bearish flag pattern is in the process of forming

The recent recovery from a one-month low, which occurred along an ascending channel, is indicative of the construction of a bearish flag pattern on hourly charts from a technical perspective. Additionally, the oscillators on the daily chart are still in negative territory, which implies that the Gold price is headed downward. However, it would be prudent to delay any further depreciation until a compelling break below the channel support, which is presently located in the $2,605-$2,600 range.

The ensuing decline could potentially propel the Gold price back towards the monthly trough, which was reached last week at approximately $2,583. A new catalyst for bears will be perceived as some follow-through selling, which will establish the groundwork for a decline towards the November monthly swing low, which is located in the $2,537-$2,536 region, on the way to the $2,500 psychological mark.

On the other hand, the $2,633-$2,634 zone, or a multi-day top that was struck on Monday and is in close proximity to the top boundary of the ascending channel, may continue to function as an immediate strong barrier. Some short-covering may be induced by a sustained increase in the price of gold, which could elevate it to the $2,654-$2,655 range. The latter should serve as a critical pivotal point, and if it is successfully resolved, it will eliminate the near-term negative bias and open the door to further gains in the pursuit of reclaiming the $2,700 round figure.

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