Gold (XAU/USD) maintains a positive bias during the early European session on Friday, trading just above the $2,600 mark. However, its ability to rally meaningfully remains constrained due to several factors, including a hawkish Federal Reserve (Fed) and geopolitical concerns, as well as the risk of a US government shutdown.
Supportive Factors for Gold: Geopolitical Tensions and Government Shutdown Risk
Gold is benefitting from its safe-haven status amid persistent geopolitical risks and fears related to the US trade policies. The failure of the US House of Representatives to pass a spending bill raises concerns about a potential government shutdown, which is adding to the uncertainty. This, combined with ongoing geopolitical tensions, is likely driving some haven flows into gold.
Moreover, concerns about trade wars, especially with US President-elect Donald Trump’s potential tariff plans, are amplifying global risk aversion. These factors help support the precious metal as investors seek safety in uncertain times.
Fed’s Hawkish Stance Caps Gold’s Gains
On the flip side, the Federal Reserve’s hawkish policy stance continues to weigh on gold’s ability to appreciate significantly. The Fed recently signaled that it would slow the pace of rate cuts in 2025, which is contributing to elevated US Treasury bond yields. As bond yields rise, the US Dollar (USD) remains strong, capping any further upside for non-yielding assets like gold.
Gold traders are also awaiting the release of the US Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred inflation gauge, for fresh clues on future inflation trends and Fed policy. The PCE data is expected to influence market sentiment and could provide further direction for gold prices.
Gold Price Technical Analysis: Vulnerable Below $2,600
From a technical perspective, gold recently fell below the key 100-day Simple Moving Average (SMA), triggering bearish signals. The oscillators on the daily chart are also gaining negative traction, suggesting that gold’s path of least resistance is currently to the downside.
Immediate resistance for gold is seen near the $2,626 level, where the price faced a swing high. A breakout above this level could lead to further buying interest, pushing gold toward the $2,652-$2,655 supply zone. If gold can sustain strength beyond this zone, it could potentially negate its bearish bias and set the stage for more gains.
Support Levels to Watch
On the downside, the recent low around $2,583 could act as a crucial support level. If gold drops below this level, the next area of support is expected near $2,560, followed by $2,537-$2,536, which is close to the November swing low. A deeper decline could bring the psychological $2,500 level into focus, with the key 200-day SMA support currently pegged near $2,472.
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- How the Fed Funds Rate Influences Interest Rates?
