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

Gold price (XAU/USD) extends its upside to near seven-week highs above $4,305 during the Asian trading hours on Tuesday. The precious metal edges higher 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 gains on 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 higher 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.

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Source: Fxstreet