• Gold price loses ground in Tuesday’s Asian 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 Asian 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.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

Source: Fxstreet