The price of gold (XAU/USD) rose to a seven-week high near $4,350 during early European trading hours on Monday. The precious metal continues its upward trend amid the possibility of interest rate cuts by the US Federal Reserve next year. Lower interest rates can reduce the opportunity cost of holding gold, supporting the non-yielding precious metal. In addition, uncertainty and risk-off sentiment could boost safe haven flows, benefiting the yellow metal’s price.
However, hawkish comments from Fed officials last week could push the US dollar higher and impact commodity prices denominated in US dollars. Traders will take more cues from speeches from Fed Governor Stephen Meiran and New York Fed President John Williams later on Monday.
The US employment report for October and November will take center stage on Tuesday, including the Non-Farm Payrolls (NFP) report, average hourly earnings and the unemployment rate. These reports could provide more clarity on the health of the labor market and potentially influence expectations for the Fed’s January meeting.
Daily Market Drivers Summary: Gold Jumps as Fed Delivers Final 2025 Rate Cut and Safe Haven Flows
- Bloomberg reported on Sunday that a mass shooting on Bondi Beach in the Australian city of Sydney left at least 16 people dead and 40 injured. Australian Prime Minister Anthony Albanese said in a press conference early Monday that the shooting was a “targeted attack” on the Jewish community. He had previously described the incident as “an evil act of anti-Semitism and terrorism that struck at the heart of our nation.”
- Chicago Fed President Austan Goolsbee said Friday that he “felt the more prudent course was to wait for more information” before cutting interest rates again after the government shutdown delayed several key economic reports in October and November.
- Cleveland Fed President Beth Hammack said the central bank should keep interest rates high enough to maintain downward pressure on inflation.
- The US Federal Reserve last week announced its third and final quarter-point rate cut this year, cutting interest rates by 25 basis points to a target range of 3.50% to 3.75%.
- Federal Reserve Chairman Jerome Powell said the cut puts the central bank in a comfortable position regarding interest rates. “We’re in a good position to wait and see how the economy develops,” Powell said.
- Markets currently estimate a roughly 76% probability that the Fed will keep interest rates steady in January 2026, compared to a 70% probability just before the December rate cut announcement, according to the CME FedWatch tool.
Gold maintains its constructive outlook in the long term
Gold price is trading in positive territory during the day. On the four-hour time frame, the positive outlook for the precious metal remains, as the price holds above the key 100-day EMA. The Bollinger band is expanding, indicating a strong uptrend. Furthermore, the bullish momentum is reinforced by the 14-day Relative Strength Index (RSI), which is located above its mid-line near 68.75. This shows the bullish momentum of the yellow metal.
On the bright side, the first upside barrier to watch is in the $4,345-$4,355 area, which represents the upper bound of the Bollinger band and the December 12 high. Continued bullish momentum could take XAU/USD back to its all-time high of $4,381. To the north, the next resistance level is located at the $4,400 psychological level.
On the downside, the initial support level for the yellow metal lies at the December 12 low of $4,257. More bearish candles reflect continued bearish pressure, which could drag the price to the next downside target at $4,200, which is the 100-day moving average. The next competition level appears at $4,166, which is the lower bound of the Bollinger band.
Frequently asked questions about gold
Gold has played a major role in human history as it has been widely used as a store of value and a medium of exchange. Currently, apart from its luster and use in jewellery, the precious metal is widely viewed as a safe haven asset, meaning it is a good investment during turbulent times. Gold is also widely viewed as a hedge against inflation and currency depreciation because it is not dependent on any specific issuer or government.
Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase gold to improve the perceived strength of the economy and the currency. High gold reserves can be a source of confidence for a country’s solvency. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase since records began. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve assets and safe havens. When the value of the dollar declines, 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 rise in the stock market tends to weaken the price of gold, while a sell-off in riskier markets tends to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession could cause the price of gold to rise rapidly due to its safe-haven status. As a lower-yielding asset, gold tends to rise as interest rates fall, while a higher cost of money usually negatively impacts the yellow metal. However, most of the moves depend on how the US Dollar (USD) behaves as the asset is priced in Dollars (XAU/USD). A stronger dollar tends to keep the price of gold in check, while a weaker dollar is likely to push gold prices higher.
