• Gold price loses ground in Tuesday’s early European session.
  • Progress in Ukraine peace talks and profit-taking weigh on the Gold price, a safe-haven asset.
  • The Fed's official projections indicated only one rate cut next year, but the outlook is highly uncertain.

Gold price (XAU/USD) loses momentum below $4,300 during the early European trading hours on Tuesday, pressured by some profit-taking and weak long liquidation from the shorter-term futures traders. Furthermore, optimism around Ukraine peace talks could weigh on the safe-haven asset like Gold.

Nonetheless, the potential downside for the yellow metal might be limited as the US Federal Reserve (Fed) implemented its third cut of the year last week and signaled additional rate reduction in 2026. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal. Nonetheless, optimism around Ukraine peace talks might cap the upside for the Gold price by reducing safe-haven demand.  

The US government shutdown has delayed the publication of a collection of US economic data, which will be released later on Tuesday. The US Nonfarm Payrolls (NFP) report will take center stage. This report could give more clues about the US interest rate path. If the data point to a slowdown in the US labor market, this would reinforce expectations of Fed rate cuts and boost the yellow metal. Also, the US Retail Sales and Purchasing Managers Index (PMI) will be published. 

Daily Digest Market Movers: Gold holds losses despite the prospect of further Fed rate cuts

  • US officials said on Monday that an agreement with Ukrainian President Volodymyr Zelenskyy to end the war with Russia was nearly complete, although territorial disputes remain unresolved and a strong security guarantee from the US and European countries remains a sticking point.
  • New York Fed President John Williams said on Monday that monetary policy is well-positioned for next year following last week’s rate reduction, amid elevated risks to employment and somewhat-reduced inflation risk, per Bloomberg. 
  • Fed Governor Stephen Miran reiterated his view that current policy remains overly restrictive. He added that he’ll likely remain at the central bank after his term expires, until a new appointee is confirmed to fill his seat.
  • According to the Summary of Economic Projections (SEP), or so-called “dot plot,” the median forecast points to only one 25-basis-point (bps) rate cut by the end of 2026. However, financial markets are generally pricing in the probability of at least two rate reductions by the year-end.
  • Fed funds futures are pricing an implied 75.6% odds of a hold in rates at the Fed's January meeting, unchanged from a day earlier, according to the CME Group's FedWatch tool.

Gold holds a long-term uptrend technical setup

Gold price edges lower on the day. According to the four-hour timeframe, the constructive outlook of the precious metal prevails. Note that the price is well-supported above the key 100-day Exponential Moving Average, suggesting that the path of least resistance is to the upside. Additionally, the Bollinger Bands widen and the 14-day Relative Strength Index (RSI) stands above the midline near 60.0, reflecting strengthening bullish momentum in the near term. 

On the upside, the immediate resistance level emerges at the December 15 high of $4,350. A continuation of the rally could take XAU/USD up to $4,365, the upper boundary of the Bollinger Band. Further north, the next hurdle to watch is an all-time high of $4,381.

On the flip side, the first support level for the yellow metal is seen at the December 15 low of $4,285. Any follow-through selling could open the door for a move near the low of December 12 at $4,257. If sellers keep drawing in bearish pressure, the yellow metal could visit $4,210, the 100-day EMA.

Risk sentiment FAQs

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

Source: Fxstreet