Gold (XAU/USD) is trading relatively flat in the $2,570s, holding near its recent lows as it faces continued headwinds from a strong US Dollar (USD) and rising interest rate expectations. Positive US economic data and upbeat Federal Reserve (Fed) commentary are dampening demand for the non-yielding asset, even as geopolitical risks provide some support.
Key Market Drivers
US Retail Sales Data:
- Headline Retail Sales grew 0.4% MoM, exceeding the forecast of 0.3% but below the prior month’s revised 0.8%.
- Core Retail Sales (ex Autos) underperformed, rising only 0.1%, below estimates of 0.3%.
- The data signals robust consumer spending, which is positive for US growth but adds to Fed rate hike risks, pressuring Gold.
Fed Chair Powell’s Remarks:
- Powell emphasized the US economy’s strength and signaled a less aggressive rate-cut trajectory.
- Higher interest rates strengthen the USD but weigh on Gold, as the latter becomes less attractive compared to interest-bearing assets.
Republican Majority’s Impact:
- With a Republican majority in both chambers of Congress, fiscal policies under President-elect Donald Trump are expected to boost inflation. While this could typically support Gold as an inflation hedge, it may also force the Fed to keep rates elevated, a bearish factor for the metal.
Investor Outflows:
- Hedge funds and ETFs continue to reduce their exposure to Gold.
- According to the World Gold Council, ETFs saw $809 million in outflows in early November, reflecting a loss of investor confidence in the metal’s short-term performance.
Geopolitical Factors:
- Ongoing geopolitical tensions, including tentative progress in US ceasefire efforts in Lebanon, provide underlying support for Gold as a safe-haven asset.
Technical Analysis: XAU/USD
Support Levels:
- Gold is finding support at the 100-day SMA, near $2,530, a critical technical level.
- Further downside targets include $2,470 and $2,400 (aligned with the 200-day SMA).
Resistance Levels:
- Initial resistance is at $2,590.
- A stronger barrier lies at $2,620, which aligns with the broken trendline from the recent highs.
Candlestick Pattern:
- A Hammer candlestick pattern formed on Thursday, indicating potential for a near-term reversal. Confirmation from a bullish close on Friday is needed to validate this signal.
Momentum Indicators:
- The Relative Strength Index (RSI) suggests bearish momentum but remains above oversold territory, allowing room for further downside.
Outlook and Strategy
Gold remains under pressure from:
- A stronger USD amid upbeat economic data and rising Fed rate expectations.
- Outflows from institutional investors and ETFs, which have weighed on sentiment.
However, long-term uptrend fundamentals and heightened geopolitical risks could trigger a recovery, especially if US inflationary pressures intensify or central banks pivot toward dovish policies.
Key Levels to Watch
Support:
- $2,530 (100-day SMA)
- $2,470 (near-term target)
- $2,400 (200-day SMA)
Resistance: - $2,590 (immediate level)
- $2,620 (trendline resistance)
Gold traders should remain cautious, watching for confirmation of technical signals and monitoring developments in US fiscal policy, Fed commentary, and geopolitical risks.