Gold price forecast: XAU is on the cusp of a strong breakout

Gold price has had an exceptional year in 2024; rallying by over 25% year to date. So exceptional was its performance that it hit  a fresh all-time high at $2,790 an ounce in late October.

It has since erased some of those gains as a hawkish Fed weighed on the precious metal in favor of the US dollar and interest-yielding assets like the US Treasuries. Last week, the bullion dropped to a one-month low at $2,583 before rebounding to trade at $2,624 as at the time of writing. 

The metal may trade within a range as investors await fresh catalysts. A look at its daily chart shows the 20 and 50-day EMAs joining at  $2,640. 

Hawkish Fed weighs on gold in favor of US dollar, Treasury Yields

In its last policy meeting of the year held about two week ago, the Federal Reserve adopted a cautionary tone on further rate cuts in 2025. Speaking after delivering a rate cut of 25 basis points, Jerome Powell stated, “We moved pretty quickly to get to here, and I think going forward obviously we’re moving slower”. 

The rate cutting cycle had the Fed lower its policy rate by a full percentage point to a level last recorded in December 2022. In addition to the heightened safe haven demand and central banks’ purchases, the environment of lower interest rates bolstered gold price by lowering the opportunity cost of holding the non-yielding asset.

However, the market is now digesting the Fed’s hawkish position with some analysts betting on two 25-basis points rate cuts in 2025. Following the monetary policy meeting, Treasury yields increased further; exerting pressure on the non-yielding bullion.

On Thursday, the benchmark 10-year US bond yields rallied to a 7-month high at 4.59%. In the new week, it remains close to that multi-month high at 4.56% as at the time of this publication.

Notably, higher Treasury yields have bolstered the US dollar, which is trading in the green for the fourth consecutive week.On Monday, the dollar index, which tracks the performance of the greenback against a basket of six major currencies, was trading close to the two-year high it hit on Friday at $108.49. 

A look at its weekly chart shows a golden cross ; where the short-term 20-day EMA has crossed the medium-term 50-day EMA to the upside. This bullish pattern points to further gains for the US dollar; an aspect that will exert further pressure on gold price. 

However, while this uptrend is set to continue, its intensity may dwindle in the short term. To start with, the financial markets will be subject to a light calendar during the Christmas period. 

Besides, easing fears over the Fed’s hawkish stance may have the dollar index in consolidation mode with $109 being a resistance level worth watching. This will in turn curb gold price losses as the bulls strive to defend the support zone at $2,600.   

Gold price analysis

The daily chart reveals that the price of gold has been in a tight range in the past few weeks. It has moved slightly below the 50-day and 25-day Exponential Moving Averages (EMA). Gold has formed a symmetrical triangle pattern, which is nearing its confluence. 

Since this pattern comes after a strong uptrend, there is a likelihood that it is a form of a bullish pennant, which will lead to more upside in 2025. Such a move will see it rebound and flip its all-time high of $2,800.