Gold eases below $4,500 as markets turn cautious ahead of US data
- Gold pulls back from the $4,500 area as traders book profits ahead of key US data.
- Geopolitical tensions and Fed easing bets keep the downside limited.
- Markets look to ADP, ISM Services PMI and JOLTS for direction ahead of Friday’s NFP report.
Gold (XAU/USD) trades on the back foot on Wednesday as selling pressure emerges near the $4,500 psychological mark, prompting mild profit-taking at elevated levels.
At the time of writing, XAU/USD is trading around $4,457, down nearly 0.80% on the day, as traders reposition ahead of US economic releases due later in the American trading session.
Despite the modest pullback, the downside appears limited so far, with dip-buying interest likely to pick up as ongoing geopolitical tensions keep broader market sentiment fragile and safe-haven demand intact for Bullion.
At the same time, sustained expectations of further monetary policy easing by the Federal Reserve (Fed) continue to provide an additional layer of support. Lower interest rates typically reduce the opportunity cost of holding non-yielding assets, such as Gold.
Looking ahead, traders are refraining from aggressive directional bets ahead of a busy US data slate that could shape the near-term direction of the US Dollar (USD) and Gold. The economic calendar features the ADP Employment Change report, Factory Orders, the ISM Services Purchasing Managers Index (PMI), and the JOLTS Job Openings survey.
Market movers: US data, Fed outlook and geopolitical risks steer market sentiment
- US-Venezuela standoff remains front and centre after a dramatic US military operation over the weekend led to the capture and ousting of Venezuelan President Nicolás Maduro. In the latest developments, US President Donald Trump said late Tuesday that Venezuela would turn over between 30 million and 50 million barrels of Oil to the US at market prices, with proceeds intended to benefit both nations. Venezuela holds the world’s largest proven Crude Oil reserves at roughly 303 billion barrels.
- Renewed US strategic interest in Greenland is adding to geopolitical tensions. The White House said on Tuesday that President Donald Trump and his advisers are “discussing a range of options” to acquire Greenland, adding that the use of the military “is always an option.”
- Data released so far this week point to cooling momentum in the US economy. The latest S&P Global PMI surveys showed business activity losing steam in December, with the Services PMI easing to 52.5 from 54.1 and the Composite PMI slipping to 52.7 from 54.2. Meanwhile, the ISM Manufacturing PMI remained in contraction territory at 47.9, easing from November’s 48.2.
- On the monetary policy front, markets are pricing in around two interest rate cuts this year amid signs of labour market cooling and moderating inflation. However, the Fed is widely expected to keep interest rates unchanged at its January 27-28 meeting, with upcoming data, especially Friday’s Nonfarm Payrolls (NFP) report, likely to shape near-term policy expectations.
- Central bank buying, widening fiscal deficits, lower US interest rates, and ongoing geopolitical risks are expected to propel gold prices toward $5,000 by the end of the first quarter, even as the broader commodities rally continues, according to Dominic Schnider, Head of Commodities and APAC Forex CIO at UBS Wealth Management, as cited in a report published by Kitco.
Technical analysis: $4,500 caps upside as bulls defend $4,450 support
From a technical perspective, Gold remains constructive on the 4-hour chart, with prices holding comfortably above the 50-period and 100-period Simple Moving Averages (SMAs). This setup keeps the broader bullish bias intact, with the metal stabilising above the $4,450 area.
The $4,450 area now acts as a key near-term pivot. A sustained break below this region would weaken the bullish structure and shift the near-term bias to the downside, exposing the next support levels near $4,400, followed by the $4,300 psychological handle.
On the upside, a decisive break of the $4,500 psychological barrier would confirm the continuation of the prevailing bullish trend and open the door for a retest of the all-time high near $4,549, set on December 26.
Momentum indicators remain supportive. The Relative Strength Index (RSI) is hovering around 58, pointing to positive momentum without overbought conditions. Meanwhile, the Average Directional Index (ADX) sits near 20, suggesting the trend remains fragile and that a period of consolidation could precede the next directional move.
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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