The price of gold (XAU/USD) is pulling back from a record high near $4,550 during early European trading hours on Monday as traders take some profits ahead of the holidays. A renewed US dollar (USD) could also impact the precious metal, as it makes gold more expensive for non-US buyers, putting pressure on prices.
Despite the short-term pullback, gold rose nearly 70% in 2025, its best annual performance since 1979. Potential downside for the yellow metal may be limited amid expectations of interest rate cuts by the US Federal Reserve in 2026. Lower interest rates could reduce the opportunity cost of holding gold, supporting the non-yielding precious metal. Additionally, ongoing geopolitical tensions could boost traditional assets like gold.
Financial markets are likely to remain weak ahead of the New Year holiday. The US Pending Home Sales report for November will be released later Monday.
Daily summary: Market movers: Gold is losing momentum as liquidity remains weak at the end of the year
- US President Donald Trump announced that he had made “a lot of progress” in talks with Ukrainian President Volodymyr Zelensky on a possible peace deal. However, he said that there is no clear breakthrough on the hotspot issue, and it may take a few weeks to achieve it.
- US weekly initial jobless claims for the week ending December 20 fell to 214,000, compared to 224,000 in the previous reading. This reading was better than market expectations of 223,000.
- Trump said last week that he expects the next Fed chairman to keep interest rates low and never “disagree” with him. These comments are likely to increase concerns among investors and policymakers about the independence of the Federal Reserve.
- The Federal Reserve has cut interest rates three times this year, and traders expect to cut rates twice next year. Financial markets expect a roughly 18.3% chance that the Federal Reserve will cut interest rates at its next meeting in January, according to the CME FedWatch tool.
Gold remains bullish, and the RSI in the overbought zone indicates caution in the near term
Gold is trading in negative territory during the day. However, in the long term, constructive outlook remains intact as the price stabilizes above the 100-day Exponential Moving Average (EMA) on the daily chart. The Bollinger Bands are widening, indicating that further upside appears appropriate.
Despite the uptrend, the 14-day RSI is above 70, indicating an overbought condition. This suggests that any bullish extension could be mitigated by a period of digestion before the next stop higher.
The all-time high at $4,550 acts as an immediate resistance level for the yellow metal. Green candles and a decisive break above the mentioned level could trigger a rise to the $4,600 psychological level.
On the downside, the December 23 low at $4,430 is initial support to watch. A break below this level would open the door to the December 22 low at $4,338, followed by the December 17 low at $4,300.
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.
