Gold price (XAU/USD) edges higher above $4,350 during the early European trading hours on Tuesday. The precious metal recovers some lost ground after falling 4.5% in the previous session, which was gold’s largest single-day loss since October. Increased margin requirements on gold and silver futures by the Chicago Mercantile Exchange (CME) Group, one of the world’s largest trading floors for commodities, prompted widespread profit-taking and portfolio rebalancing.
Nonetheless, the potential downside for the yellow metal might be limited amid the prospect of Fed rate cuts in 2026. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal. Furthermore, persistent global economic uncertainty and geopolitical tensions could boost traditional assets such as Gold.
Trading volumes are expected to remain thin ahead of the New Year holidays. Traders brace for the release of the Federal Open Market Committee (FOMC) Minutes later on Tuesday for fresh impetus.
Daily Digest Market Movers: Gold rebounds on Fed rate cuts bets in 2026 and geopolitical turmoil
- Russia accused Ukraine of launching a drone strike on the Russian presidential residence in northern Russia, prompting Moscow to reconsider its stance in peace negotiations, Reuters reported on Monday. Ukraine dismissed Russian statements about the drone attack, and its foreign minister said Moscow was seeking “false justifications” for further strikes against its neighbor.
- The CME raised margin requirements for gold, silver, and other metals in a notice posted to the exchange’s website on Friday. These notices require traders to put up more cash on their bets in order to insure against the possibility that the trader will default when they take delivery of the contract.
- The US Pending Home Sales rose 3.3% MoM in November after an upwardly revised 2.4% gain in October, according to the National Association of Realtors on Monday. This figure came in stronger than the estimations of 1.0% and registered its highest level since February 2023.
- US President Donald 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.
- Financial markets are pricing in nearly a 16.1% probability that the Fed will cut interest rates at its next meeting in January, according to the CME FedWatch tool.
Gold maintains a bullish bias, RSI suggests near-term consolidation
Gold trades on a positive note on the day. The constructive outlook of the precious metal prevails as the price remains above the key 100-day Exponential Moving Average (EMA) on the daily chart, while the Bollinger Bands widen.
Nonetheless, further consolidation or temporary sell-off cannot be ruled out as the 14-day Relative Strength Index (RSI) hovers around the midline. This suggests the neutral momentum in the near term.
The immediate resistance level to watch is the upper boundary of the Bollinger Band of $4,520. A decisive break above this level would likely trigger a retest of the all-time high of $4,550, en route to the $4,600 psychological mark.
On the flip side, the initial support level for XAU/USD emerges in the $4,305-$4,300 zone, representing the December 29 low and round figure. Any follow-through selling below the mentioned level would signal that the correction has more room to run and could target the December 16 low of $4,271.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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