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 ground 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.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
