Gold prices (XAU/USD) has been struggling to gain momentum. Despite occasional upward attempts, the precious metal has continued its decline, weighed down by robust US economic data that hints at a hawkish Federal Reserve (Fed) outlook.
The gold market faced significant pressure this week. Strong US Retail Sales figures for November reinforced expectations of sustained economic growth, fueling speculation about the Fed’s policy stance. This article explores the key market drivers impacting gold prices, technical analysis, and future projections.
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US Retail Sales Boost Economic Confidence
US Retail Sales in November rose by 0.7%, surpassing expectations of a 0.5% increase. This jump followed October’s upwardly revised growth of 0.4%. Retail spending, which accounts for more than 60% of the US GDP, signals robust economic health despite a global slowdown.
This economic resilience aligns with Monday’s preliminary S&P Global Purchasing Managers Index (PMI), which showcased better-than-expected activity in the US services sector. Collectively, these figures affirm a positive outlook for the fourth quarter.
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Hawkish Fed Expectations Weigh on Gold
Investors are preparing for a hawkish stance from the Federal Reserve during its two-day meeting. Futures markets are already pricing in a 25 basis points (bps) rate cut, with only a slim chance of additional cuts in 2025.
The anticipation of steady US growth and rising inflation, further fueled by fiscal policies, continues to lift US Treasury yields. These higher yields act as a headwind for non-yielding assets like gold, pushing prices downward.
Middle East Tensions Ease
Gold previously found support amid heightened geopolitical concerns in the Middle East. However, as tensions temporarily ease, investor focus has shifted back to economic fundamentals and Fed policy.
Technical Analysis: Bearish Momentum Persists
Gold’s downward trajectory continues, marked by a rejection at the $2,720 resistance level last week. Key technical indicators point to growing bearish sentiment:
- Support Levels: Immediate support is expected near $2,630 (December 9 low), with a critical target at $2,610 (lows from November 25, 26, and December 6).
- Resistance Levels: Short-term resistance is identified at $2,665 (Monday’s high) and $2,690 (Friday’s intra-day level).
On the 4-hour chart, the bearish engulfing candle and the potential double top formation suggest further downside pressure for gold prices.
Conclusion
Gold remains under pressure due to strong US economic data and the potential for a hawkish Fed decision. While technical indicators signal further declines, geopolitical and economic factors may continue to shape gold’s trajectory.
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