Gold faces short-term downward correction; support remains intact amid Fed rate cut expectations

Thursday Asian session, gold (XAU/USD) experienced profit-taking from a two-week high. Although the decline was moderate, it reflected subtle changes in market risk appetite sentiment. Optimistic expectations pushed up stocks and risk assets, and investors modestly took profits ahead of the holiday, leading to a retreat in safe-haven buying. However, the dollar’s soft trend and the continued dovish expectations of the Federal Reserve set a ceiling for precious metals’ decline.

Economic Data Mixed, Fed Remains Dovish

The latest US economic data provided mixed signals. Recent figures from the US Census Bureau showed that new orders growth slowed to 0.5% in September, well below the revised 3.0% from the previous month, though still above market expectations of 0.3%. After excluding transportation and defense sectors, order growth was 0.6% and 0.1%, respectively, indicating relatively weak actual demand on the manufacturing side.

The employment market also showed inconsistent signals. For the week ending November 22, initial unemployment claims fell to 2.16 million, a seven-month low, often seen as a sign of a resilient labor market. However, the Chicago PMI unexpectedly dropped to 36.3, entering contraction territory again, indicating soft manufacturing activity.

This complexity of data and the soft employment market reinforce market expectations of continued rate cuts at the December 9-10 FOMC meeting. New York Fed President John Williams recently stated that there is room to lower rates in the short term without threatening inflation targets. Fed Governor Christopher Waller also pointed out that labor market difficulties are sufficient to support a 25 basis point cut in December. Governor Stephen M. Miller further emphasized that worsening employment conditions and economic slowdown require larger rate cuts to restore policy neutrality. These dovish signals pushed the US dollar index (DXY) to a more than one-week low, directly benefiting non-yielding gold assets.

Geopolitical Optimism Weakens Safe-Haven Appeal

Improved prospects for Russia-Ukraine negotiations became an important catalyst for risk sentiment this week. Russian officials stated that US-led peace agreement negotiations are progressing seriously, and US President Trump claimed the deal is “very close.” While Kremlin spokesperson Dmitry Peskov expressed caution about the progress, these signals were enough to boost market optimism. As geopolitical risk premiums recede, traditional safe-haven funds have flowed out of precious metals into stocks and other risk assets, exerting recent pressure on gold prices.

Technical Outlook: Limited Downside, Opportunities at Lower Levels

From a technical perspective, gold’s downside correction space is relatively controllable. Any subsequent decline may find support around $4,132-4,130, near previous highs and key support levels. If this level is broken effectively, prices could accelerate downward toward the psychological level of $4,100. Further selling pressure would reach the confluence support formed by the 4-hour 200-period EMA and the upward trendline since late October, currently near $4,040. Only a true break below this zone would threaten the $4,000 psychological level, potentially reversing the short-term trend to bearish.

On the upside, the $4,171-4,173 zone (Wednesday’s high over the past two weeks) constitutes direct resistance. A breakout above this level could see gold targeting the $4,200 round number. Sustained upward movement beyond that could further expand the upside potential, testing the monthly high around $4,245.

Overall, although gold faces short-term profit-taking pressure, the dovish Fed rate cut expectations, a generally weak dollar, and technical support levels suggest limited downside risks. Investors should monitor economic data developments and Fed policy statements, viewing any deeper corrections as opportunities for buying on dips.