Gold consolidates in holiday trade amid geopolitical risks and strong Dollar

• Safe-haven demand from geopolitical risks in the Middle East and Ukraine boosts gold, but the strong US dollar limits its gains.

• Rising US bond yields, with the 10-year Treasury at its highest since May, limit gold's momentum.

• Thin holiday trading volumes restrict significant moves and keep gold range-bound in the short term.

Gold prices have climbed to the $2,620 area, supported by geopolitical risks and a modest pullback in US Treasury yields. Safe-haven demand driven by geopolitical tensions in the Middle East and Ukraine has increased interest in gold. However, the Federal Reserve's hawkish tone, signalling a slower pace of interest rate cuts in 2025, limits the potential for significant upward momentum in gold prices.

On the other hand, the US dollar remains strong, adding pressure to gold prices. Additionally, rising US bond yields, with the benchmark 10-year Treasury reaching its highest level since May, further weigh on gold. While geopolitical tensions and safe-haven demand provide short-term support, gold's upside potential remains limited due to the firm dollar and high bond yields. Thin trading volumes during the holiday season also restrict significant moves in gold.

The market will focus on the Richmond Manufacturing Index for further insights into the US economy and monetary policy. This data and geopolitical developments will likely determine gold's direction for the week.

Gold consolidates during holiday season

The 1-hour chart for gold shows that the price is trading below a descending trendline, indicating a bearish structure in the short term. The 50-period SMA has crossed below the 200-period SMA, forming a death cross that signals potential bearish pressure. However, the price rebounded from the bottom after the release of the US PCE data, which led to a sharp correction in the US Dollar Index.

The RSI indicator hovers near 50, indicating neutral momentum with no clear overbought or oversold conditions. The price is consolidating near the $2,617 level, but trendline resistance and moving averages above suggest that the upside may remain limited unless a breakout occurs above the descending trendline. A sustained move above the $2,650 level could signal further bullish momentum, while a failure to break higher may result in renewed selling pressure.

Bottom line

In conclusion, gold prices remain influenced by a mix of safe-haven demand, geopolitical tensions, and macroeconomic factors. While the recent pullback in US Treasury yields and safe-haven flows have provided short-term support, the Federal Reserve's hawkish stance, a strong US Dollar, and rising bond yields continue to cap significant upside potential. Thin trading volumes during the holiday season add to the lack of directional momentum. This week, gold’s direction will largely depend on US economic data, such as the Richmond Manufacturing Index, and ongoing geopolitical developments. A breakout above key resistance levels will be necessary to confirm a sustained bullish move.

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