Gold climbs on US rate cut expectations, geopolitical tensions
- Gold price jumps in Wednesday’s Asian session.
- Expectations of US interest rate cuts and ongoing geopolitical tensions boost the Gold price.
- Some profit-taking and portfolio rebalancing cannot be ruled out ahead of the New Year's holidays.
Gold price (XAU/USD) extends the rally above $4,350 during the Asian trading hours on Wednesday. Gold's price has surged about 65% this year and is set to record its biggest annual gains since 1979. The rally in the precious metal is bolstered by the prospect of further US interest rate cuts in 2026. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
Furthermore, the persistent Israel-Iran conflict and the ongoing US-Venezuela tensions could boost the yellow metal. It’s worth noting that traders seek assets that can preserve value during periods of uncertainty, which supports a traditional safe-haven asset such as Gold.
On the other hand, increased margin requirements on gold and silver futures by the Chicago Mercantile Exchange (CME) Group could prompt widespread profit-taking and portfolio rebalancing, which might cap the upside for the yellow metal. Additionally, reported progress on a Ukraine peace deal might drag the Gold price lower.
Traders brace for the release of the US Initial Jobless Claims report later on Wednesday. Economists forecast a modest rise in new applications for the week ending December 27 to 220,000, compared to 214,000 in the previous week. Financial markets are expected to trade on thin volumes as traders prepare for the New Year holiday.
Daily Digest Market Movers: Gold heads for biggest annual price gains in over 40 years
- The US Federal Reserve (Fed) decided to cut the interest rate by 25 basis points (bps), bringing the federal funds rate to a target range of 3.50%–3.75%. Those in favor cited increased downside risks to employment and easing inflation pressures.
- Fed Governor Stephen Miran voted against the action in favor of a jumbo rate cut, while Chicago Fed President Austan Goolsbee and Kansas City’s Jeff Schmid dissented in favor of leaving rates unchanged.
- According to minutes from the Federal Open Market Committee (FOMC) at its December 9-10 meeting, most Fed officials saw further interest-rate reductions as appropriate so long as inflation declines over time, though they remained divided over when and how far to cut.
- Following the FOMC minutes’ release, the probability of a January cut based on federal funds futures contracts declined slightly to about 15%, according to the CME FedWatch tool.
- The Chicago Mercantile Exchange (CME) Group, one of the world’s largest trading floors for commodities, raised margin requirements for gold, silver, and other metals in a notice posted to the exchange's website last week. These notices require traders to put up more cash on their bets in order to insure against the possibility that the trader will default when they take delivery of the contract.
Gold maintains a bullish bias, with bullish RSI momentum
Gold trades in positive territory on the day. According to the daily chart, the bullish outlook of the precious metal remains intact as the price holds above the key 100-day Exponential Moving Average (EMA), while the Bollinger Bands widen. The path of least resistance is to the upside, with the 14-day Relative Strength Index (RSI) pointing higher above the midline. This displays the upward momentum in the near term.
The first upside barrier for XAU/USD is seen at the upper boundary of the Bollinger Band of $4,520. Green candlesticks and steady action above this level could set the price up for a run toward the all-time high of $4,550, en route to the $4,600 psychological mark.
On the other hand, the initial support level for Gold emerges in the $4,305-$4,300 region, representing the December 29 low and round figure. A stronger pullback could drag the yellow metal toward the December 16 low of $4,271.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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