Market Analysis: Gold struggles to break higher ahead of key economic data

Gold has been struggling to break higher as ongoing US dollar strength continues to pressure commodities. XAU/USD has been stuck around $2,650 for the past week as a breakaway rally was halted last Monday. The initial push higher had been brought on by fears that escalating tensions in Eastern Europe could lead to the use of nuclear weapons after Russia floated the idea. However, the lack of follow-through and the unlikeliness of such an event happening saw markets reverse some of the safe haven buying, leading to a selloff in gold. 

Gold (XAU/USD) daily chart

Past performance is not a reliable indicator of future results.

The US dollar saw buying interest on Monday after president-elect Donald Trump made some commentary about BRICS nations having to refrain from trying to replace the dollar as the global currency. But there seems to be some longer-term weakness in the currency as the post-election rally has died down, leading to a correction. That said, focus remains on inflation and whether his tariff policies will exasperate it. 

Sentiment surrounded the Fed policy outlook continues to be a key driver in markets and we may see it shift this week as the latest US jobs data is released, alongside a speech from Jerome Powell. The bias remains in favour or the US dollar as markets continue to expect a hawkish stance from the Fed. However, Fed Governor Christopher Waller recently said that "policy is still restrictive enough that an additional cut at our next meeting will not dramatically change the stance of monetary policy and allow ample scope to later slow the pace of rate cuts, if needed, to maintain progress toward our inflation target.” This suggests that even if the jobs data released this week continues to show a strong economic landscape in the US, the Federal Reserve may decide to cut rates at their meeting on December 18. This ultimately puts extra emphasis on the US CPI data to be released next week, as investors may view that as the decisive piece of the puzzle. Current pricing shows a 70% chance of a 25bps cut. 

The outlook for 2025 remains skewed to the downside for gold if this dynamic of persistent restrictive monetary policy continues. The ongoing threat of escalating geopolitical tensions is likely to keep gold supported whereby a significant selloff may not take place, but the upside is likely limited unless the rate expectations shift over the coming months. 

For now, XAU/USD faces resistance below $2,670, fortified by the 50-day simple moving average. The RSI is showing a clear pattern of indecision when it comes to market direction as it has flattened out around the mid-line (50). The lack of desire to be a long-term gold seller has seen support solidify above $2,500. The key barrier for further upside this week will be a rise in the US dollar and US yields as a result of more hawkish expectations from the Fed, whether that stems from Powell’s speech on Wednesday or the US jobs data on Friday. On the flipside, if we see Powell reiterate Waller’s comments and suggest that a rate cut may come this month regardless of the data, then we could see gold flourish and attempt to break back above $2,700.