Gold (XAU) Price Forecast: Rally Stalls in Holiday Lull, but Yields Signal Downside Risk

Gold Prices Pull Back but Hold Weekly Gains

Gold prices edged lower on Friday as traders grappled with resistance near $2629.13, a key 50% retracement level. This price point is acting as a pivot, with potential upside resistance seen at $2663.51 and the 50-day moving average of $2665.65. A sustained move above this area could prolong the current counter-trend rally.

On the downside, immediate targets include Fibonacci support at $2607.35, followed by the monthly low at $2583.91. Despite Friday’s dip, gold remains on track for a 0.5% weekly gain.

At 12:19 GMT, XAG/USD is trading $2630.68, down $3.19 or -0.12%.

Geopolitical Tensions Drive Safe-Haven Demand

Gold’s resilience this week has been underpinned by escalating geopolitical tensions. Investors are closely monitoring conflicts in Eastern Europe and the Middle East. Israeli strikes against Houthi targets in Yemen and Russian drone attacks in Ukraine have reinforced gold’s appeal as a safe-haven asset. This geopolitical backdrop continues to keep gold in play, with traders hedging against the risk of further flare-ups.

Stronger Dollar and Treasury Yields Cap Gold’s Upside

The dollar index is set for a fourth consecutive week of gains, limiting gold’s potential for further advances. The greenback’s strength, driven by robust U.S. economic data and expectations of fewer Federal Reserve rate cuts in 2025, makes gold more expensive for non-dollar holders.

Additionally, U.S. Treasury yields climbed above 4.6% after mixed jobless claims data. The benchmark 10-year yield rose to 4.607%, reflecting market sentiment for tighter monetary policy.

Economic Data Signals Hawkish Fed Stance

U.S. jobless claims for the week ending December 21 fell to 219,000, below market forecasts, signaling continued labor market strength. However, continuing claims increased by 46,000, the highest since late 2021. This divergence underscores the complexity facing the Fed, which cut rates by 25 basis points in December but hinted at fewer cuts in 2025. Market participants currently anticipate 38 basis points of rate reductions next year.

Market Forecast

Gold’s short-term outlook remains bearish, with rising yields and dollar strength acting as stronger drivers than geopolitical risks. However, the current move is unfolding during a historically slow trading week, and thinner volumes may limit follow-through.

A break below $2607.35 could lead to further declines, but price action is likely to remain range-bound until liquidity returns in the new year. Resistance near $2665.65 remains the key upside barrier, and gold’s path of least resistance favors the downside unless geopolitical tensions escalate materially.

More Information in our Economic Calendar.