Gold prices (XAU/USD) extended their steady climb during the Asian trading session, reaching a fresh daily high around the $2,620 mark in the last hour. Despite the persistent geopolitical risks and ongoing trade war concerns, a modest pullback in US Treasury bond yields has provided some support to the precious metal. However, any significant rally in gold seems unlikely as the Federal Reserve’s recent hawkish shift casts a shadow over the market.
Fed’s Hawkish Stance Weighs on Gold’s Prospects
Last week, the Federal Reserve signaled a slowing pace of interest rate cuts in 2025, helping the US Dollar hold firm near its two-year high. This hawkish stance has also bolstered US bond yields, which typically compete with gold for investor attention due to the latter’s non-yielding nature. Consequently, this environment has made it difficult for gold to gain substantial ground, with the market remaining cautious after gold hit a one-month low last week amid light trading volumes.
Geopolitical Tensions and Market Focus on Economic Data
Gold’s price support continues to be driven by haven flows, as global geopolitical tensions remain elevated. The Israel Defense Forces (IDF) reported on Tuesday that sirens had sounded in central and southern Israel, and the military intercepted a projectile fired from Yemen. Meanwhile, Russian forces made gains in eastern Ukraine, capturing two villages in the Donetsk region. US President-elect Donald Trump has also urged Ukraine to consider a ceasefire, adding further complexity to the situation.
Looking ahead, traders are eyeing the upcoming release of the Richmond Manufacturing Index, which, alongside US bond yields, is expected to influence the US Dollar and market sentiment. The market remains thin on Christmas Eve, making any movement more susceptible to volatility.
Technical Indicators Suggest Limited Upside for Gold
From a technical perspective, gold’s recent recovery from a one-month low along an ascending trend channel has led to the formation of a bearish flag pattern on hourly charts. Daily oscillators also remain in negative territory, suggesting that the path of least resistance for gold is likely downward. A convincing break below the $2,605-$2,600 support zone would confirm further bearish momentum.
If gold prices do decline, they could test the recent monthly low around $2,583, with a potential move towards the November swing low at $2,537-$2,536. A sustained decline could see gold prices approach the key psychological level of $2,500.
Resistance Levels to Watch
On the upside, gold faces immediate resistance near the $2,633-$2,634 range, which marked a multi-day top earlier in the week. A sustained break above this level could lead to short-covering and a push toward the $2,654-$2,655 region. However, a decisive move above this level could shift the market’s bias, potentially allowing gold to target the $2,700 mark, further negating the current bearish sentiment.
In summary, while geopolitical tensions and the retreat in US bond yields provide some support for gold, the Federal Reserve’s cautious approach to interest rates and the strength of the US Dollar are likely to cap any significant gains for the precious metal in the near term.
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