Daily Price Outlook
Despite the strong US dollar and the Fed's hawkish stance, gold (XAU/USD) has managed to maintain its upward momentum, pushing up to around the 2,645 level and even hitting an intra-day high of 2,646.
This surprising strength in gold can largely be attributed to the ongoing geopolitical risks, particularly the extended Russia-Ukraine conflict and rising tensions in the Middle East, which are pushing investors towards the safety of gold.
On the other hand, a stronger-than-expected rise in China’s services sector might boost global risk sentiment, which could reduce the demand for gold as a safe-haven asset.
However, the unexpected dip in China's manufacturing PMI and the possibility of an interest rate cut by the People's Bank of China may help maintain gold’s appeal for the time being.
US Dollar Strengthens Amid Improving Economic Data and Fed’s Cautious Outlook
On the US front, the broad-based US dollar has been edging higher, approaching the 108.00 mark on the US Dollar Index (DXY), which tracks the USD against six major currencies.
This comes as the ISM Manufacturing PMI improved to 49.3 in December, up from 48.4 in November, beating market expectations. The stronger PMI signals a slight recovery in the manufacturing sector, adding support to the dollar.
Richmond Fed President Thomas Barkin mentioned that the US central bank’s policy rate should remain restrictive until inflation shows clearer signs of heading back to the 2% target.
Similarly, Fed Governor Adriana Kugler and San Francisco Fed President Mary Daly pointed out the challenges central bankers face in balancing interest rates this year, with a focus on slowing monetary easing.
Traders are keeping a close eye on the economic policies of President-elect Trump, particularly concerns over potential tariffs that could raise living costs.
These worries, along with the Federal Reserve’s recent projection of fewer rate cuts in 2025, reflect caution in the markets due to persistent inflation pressures.
China’s Economic Growth Strategies and Their Potential Impact on Gold Prices
On the other hand, the officials from the People’s Bank of China (PBoC), the National Development and Reform Commission (NDRC), and the Ministry of Finance (MoF) are scheduled to hold a briefing on Wednesday to discuss expanding the consumer goods trade-in program. This initiative is part of China’s efforts to boost domestic consumption and support economic growth.
On the data front, the Caixin China Services PMI showed positive growth, rising to 52.2 in December from 51.5 in November, surpassing expectations.
This marks the fastest growth in the services sector since May 2024. However, the Caixin Manufacturing PMI fell unexpectedly to 50.5 in December, down from 51.5 in November, missing market predictions. This highlights the mixed performance between China's service and manufacturing sectors.
In addition, the Shanghai Stock Exchange has committed to further opening up China’s capital markets during a meeting with foreign institutions, signaling a move to attract more international investment. Despite challenges in the global economy, China’s strong fundamentals continue to show resilience.
According to the Financial Times, the PBoC is considering an interest rate cut at an appropriate time this year, which could impact markets, particularly in Australia, given their strong trade ties with China.
Therefore the positive growth in China’s services sector and plans to boost domestic consumption could strengthen market sentiment, potentially reducing gold’s appeal as a safe-haven asset. However, any interest rate cuts by the PBoC may support gold’s attractiveness.
GOLD (XAU/USD) – Technical Analysis
Gold (XAU/USD) is trading at $2,640.11, up 0.15% in the last session, as it continues to consolidate within a moderately bullish framework on the 4-hour chart.
The price hovers above the pivot point at $2,637.83, signaling a potential breakout from key levels. Immediate resistance is set at $2,662.22, followed by $2,675.23 and the critical $2,692.86 level. A successful breach above these levels could extend the bullish momentum.
On the downside, immediate support is observed at $2,624.44, with further safety levels at $2,603.20 and $2,583.91.
The 50-day EMA at $2,629.15 acts as a key support zone, maintaining the positive bias. The RSI stands at 54, suggesting neutral to moderate bullish momentum, with room for additional upside.
The consolidation phase reflects market indecision, but sustained movement above $2,637.83 may trigger buying interest targeting the $2,660 range.
Conversely, a break below $2,624.44 could shift sentiment, exposing gold to deeper retracements toward $2,583.91. Traders should monitor these levels closely for near-term directional clarity.
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