Gold Trades Below Record High Amid Fed Uncertainty, Geopolitical Tensions

Gold prices are maintaining a strong position near their all-time highs, as traders remain cautious due to uncertainty surrounding the Federal Reserve's future monetary policy decisions.

Several factors are providing support to gold prices, including central bank buying activity, inflows into exchange-traded funds (ETFs), and persistent geopolitical risks. Technical analysis suggests a positive outlook, with analysts anticipating a potential breakthrough above $4,350.

At the start of the week, gold (XAU/USD) is trading firmly, marking its fifth consecutive day of gains. The current price hovers around $4,345, just short of the record high of approximately $4,381 reached on October 20.

From a broader perspective, the precious metal continues to find support from ongoing geopolitical tensions. Simultaneously, consistent demand from central banks and strong inflows into gold-backed ETFs are contributing to upward pressure on prices.

Investors are closely monitoring the upcoming U.S. economic data releases, which are expected to play a significant role in shaping expectations regarding the Federal Reserve's policy direction into 2026. This week's focus will be on the delayed October and November Nonfarm Payrolls (NFP) report, scheduled for release on Tuesday, followed by the Consumer Price Index (CPI) data on Thursday.

Market Sentiment Influenced by China Slowdown and Cautious Fed Signals

Recent economic data from China has indicated a widening slowdown in the world's second-largest economy. November's industrial output increased by 4.8% year-on-year, falling short of expectations and showing a slight deceleration compared to October. Retail sales also experienced a weaker gain of just 1.3%, representing the slowest growth since late 2022. These figures have heightened concerns about global economic growth, contributing to risk-averse sentiment and bolstering demand for gold as a safe-haven asset.

Geopolitical risks remain elevated due to stalled US-led peace negotiations between Russia and Ukraine. According to Reuters, Ukrainian President Volodymyr Zelenskiy has proposed dropping Ukraine's bid to join NATO in exchange for security guarantees from the West, as part of efforts aimed at resolving the conflict with Russia. While this proposal would address one of Moscow's primary objectives, Kyiv has so far resisted ceding territory to Russia.

Last week, the Federal Reserve lowered borrowing costs by 25 basis points (bps) in a 9-3 vote, bringing the policy rate to a range of 3.50%-3.75%. The central bank signaled a cautious approach to further easing, balancing concerns about a softening labor market against persistent inflation.

During the post-meeting press conference, Fed Chair Jerome Powell stated that the central bank is "well positioned to wait and see how the economy evolves," while acknowledging the presence of risks on both sides of the Fed's mandate. The relatively dovish tone led traders to anticipate two rate cuts in the coming year, despite the latest dot plot indicating only one.

Two of the three dissenting members, including Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid, preferred to maintain the current rates. Goolsbee stated on Friday that he favored waiting for more clarity on inflation before implementing further easing measures. Schmid argued that little had changed since the previous meeting, emphasizing that inflation remains too high and the economy continues to show momentum with a largely balanced, though cooling, labor market.

Looking ahead, the U.S. economic calendar is relatively light on Monday, featuring the release of the New York Empire State Manufacturing Index. Markets will also be closely following comments from Fed Governor Stephen Miran, who dissented in favor of a larger 50 basis point rate cut, as well as remarks from New York Fed President John Williams later in the day.

Technical Analysis Points to Potential Breakout

From a technical standpoint, gold's overall structure remains positive, following a bullish continuation move above a symmetrical triangle pattern. Immediate resistance is observed near the $4,350 level, with a potential retest of the all-time high around $4,381. On the downside, the previous breakout zone near $4,250 is now acting as a key initial support level, followed by the rising 50-period Simple Moving Average (SMA) at $4,233. A more significant corrective pullback could attract renewed buying interest in the $4,180-$4,170 range.

Momentum indicators also support the bullish outlook, with the Relative Strength Index (RSI) remaining above 70, indicating strong upward momentum. Additionally, the Average Directional Index (ADX) at 40 has turned sharply higher, suggesting strengthening trend conditions.

Gold FAQs

**Why invest in gold?**

Throughout history, gold has served as both a store of value and a medium of exchange. In modern times, it's considered a safe-haven asset, particularly during periods of uncertainty. Gold is also viewed as a hedge against inflation and currency depreciation, as its value isn't tied to any specific issuer or government.

**Who are the biggest gold buyers?**

Central banks are the largest holders of gold. They often diversify their reserves by purchasing gold to bolster their currencies during turbulent times. Substantial gold reserves can instill confidence in a country's financial stability. In 2022, central banks added 1,136 tonnes of gold, valued at approximately $70 billion, to their reserves, marking the highest annual purchase on record, according to the World Gold Council. Emerging economies like China, India, and Turkey are rapidly increasing their gold reserves.

**How does gold correlate with other assets?**

Gold typically has an inverse correlation with the U.S. dollar and U.S. Treasuries, both of which are major reserve and safe-haven assets. When the dollar's value declines, gold prices tend to rise, enabling investors and central banks to diversify their holdings during volatile periods. Gold also exhibits an inverse correlation with risk assets. A stock market rally tends to weaken gold prices, while sell-offs in riskier markets often benefit the precious metal.

**What factors influence gold prices?**

Various factors can affect gold prices. Geopolitical instability or fears of a major recession can quickly drive up gold prices due to its safe-haven status. As a non-yielding asset, gold tends to perform well when interest rates are low, while higher interest rates typically put downward pressure on its price. That said, the reality is a bit more complicated. most price movements are influenced by the U.S. dollar's performance, as gold is priced in dollars (XAU/USD). A strong dollar tends to keep gold prices in check, while a weaker dollar is likely to push them higher.