- Gold price edges lower in Monday’s early European session.
- Gold bulls take a breather after surging past the all-time high in the previous session.
- The prospect of Fed rate cuts next year and safe-haven flows might cap the downside for XAU/USD.
Gold price (XAU/USD) retreats from a record high near $4,550 during the early European trading hours on Monday as traders book some profits ahead of holidays. A renewed US Dollar (USD) could also weigh on the precious metal, as it makes Gold more expensive for non-US buyers, pressuring prices.
Despite the short-term pullback, Gold has surged nearly 70% in 2025, its best annual performance since 1979. The potential downside for the yellow metal might be limited amid expectations for the US Federal Reserve (Fed) interest rate cuts in 2026. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal. Additionally, persistent geopolitical tensions could boost a traditional asset like Gold.
Financial markets are likely to remain subdued ahead of the New Year holidays. The US Pending Home Sales report for November will be released later on Monday.
Daily Digest Market Movers: Gold loses traction as year-end liquidity stays thin
- US President Donald Trump stated that he made “a lot of progress” in talks with Ukrainian President Volodymyr Zelensky over a possible peace deal. However, he said that there’s no apparent breakthrough on the flashpoint issue of territory, and it might take a few weeks to get it done.
- US weekly Initial Jobless Claims for the week ending December 20 declined to 214,000, compared to 224,000 in the previous reading. This reading came in better than the market expectation of 223,000.
- Trump said last week that he expects the next Fed Chairman to keep interest rates low and never “disagree” with him. The comments are likely to heighten concerns among investors and policymakers about Federal Reserve independence.
- The Fed has cut rates three times this year, and traders are pricing two rate cuts next year. Financial markets are pricing in nearly an 18.3% chance the Fed will cut interest rates at its next meeting in January, according to the CME FedWatch tool.
Gold stays bullish, an overbought RSI suggests near-term caution
Gold trades in negative territory on the day. However, in the longer term, the constructive outlook remains intact as the price holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. The Bollinger Bands widen, indicating further upside looks favorable.
Despite the bullish trend, the 14-day Relative Strength Index (RSI) is located above 70, indicating an overbought condition. This suggests that any upside extension could be tempered by a period of digestion before the next leg higher.
The all-time high of $4,550 acts as an immediate resistance level for the yellow metal. Green candlesticks and a decisive break above the mentioned level could see a rally to the $4,600 psychological mark.
On the downside, the December 23 low of $4,430 is the initial support to watch. A break below this level would open the door to the December 22 low of $4,338, followed by the December 17 low of $4,300.
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.
