What's Driving Gold (XAU/USD) Higher Amid Policy Uncertainty and Geopolitical Tensions?

Gold Consolidates Near Seven-Week Peak as Market Digests Mixed Economic Signals

Gold bullion, commonly traded as XAU/USD in financial markets—with XAU representing the chemical symbol for gold and USD the US dollar—continues to find support near record levels as traders grapple with conflicting macroeconomic signals. The precious metal retreated marginally from its seven-week pinnacle of $4,353, settling around $4,302 as profit-taking emerged following a robust weekly performance. Despite the pullback, bullion remains firmly in positive territory, up more than 0.51% for the session, underscoring the resilience of safe-haven demand.

Fed Officials Divided on Inflation Trajectory as Data Gaps Complicate Policy Outlook

The Federal Reserve’s recent communications have painted a complex picture of monetary policy direction. Among the three voting dissenters in the latest policy decision, two expressed alarm over persistent inflation concerns, creating ambiguity around 2025 interest rate trajectories.

Kansas City Federal Reserve President Jeffrey Schmid argued that current economic conditions do not justify rate cuts, contending that inflation remains “too hot.” He emphasized, “Right now, I see an economy that is showing momentum and inflation that is too hot, suggesting that policy is not overly restrictive.” This hawkish stance contrasts sharply with softer labor market indicators released earlier this week.

Chicago Federal Reserve President Austan Goolsbee adopted a more cautious posture, advocating for additional data before policy adjustments. Critically, he signaled a dovish lean regarding rate cuts next year, projecting approximately 50 basis points of easing should economic conditions develop as anticipated.

Philadelphia Federal Reserve President Anna Paulson focused on labor market fragility but expressed confidence in inflation moderation. She attributed future price relief to diminishing tariff impacts, which have been the primary source of price pressures exceeding the Fed’s 2% target this year.

Cleveland Federal Reserve President Beth Hammack maintained her focus on inflation headwinds, preferring a more restrictive policy stance to constrain price momentum further.

Weak Labor Data Signals Cracks in Employment Market

The employment landscape showed unexpected softness in the latest jobless claims report. Initial jobless claims for the week ending December 6 jumped to 236,000, a sharp increase from the previous week’s upwardly revised 192,000. The surge undercuts the narrative of a resilient labor market and may justify the Fed’s recent pause in rate hikes.

Conversely, continuing claims for the week ending November 29 declined to 1.838 million from 1.937 million, suggesting some stabilization in longer-term unemployment levels despite the headline disappointment.

Fed Chair Jerome Powell cautioned that much of the recent economic data could be distorted by government shutdown effects, adding layers of uncertainty to policymakers’ inflation assessments.

Geopolitical Stalemate Underpins Safe-Haven Demand

Russia-Ukraine peace negotiations appear stalled, with the White House expressing frustration over the pace of discussions. US President Trump has reportedly expressed disappointment with Ukrainian President Volodymyr Zelenskiy regarding the proposed peace framework, reinforcing geopolitical risk premiums embedded in gold prices.

Dollar Weakness Provides Secondary Support

The US Dollar Index (DXY), which measures the greenback’s strength against a basket of six major currencies, remained flat at 98.35. More significantly, US real yields—which move inversely to gold—declined nearly 2.5 basis points to 1.872%, offering tailwind support for bullion prices. The 10-year Treasury yield edged higher by 4 basis points to 4.19%, though real yield declines remain the more supportive factor for precious metals.

Technical Setup Remains Constructive for Further Upside

From a technical perspective, XAU/USD maintains its bullish bias despite profit-taking near resistance. The Relative Strength Index (RSI) remains elevated in overbought territory, signaling robust buying momentum. This configuration suggests that bulls retain control of the near-term trend.

Should gold break above Friday’s high of $4,353, the path opens toward testing the all-time high at $4,381. Sustained momentum could propel prices toward successive targets of $4,400, $4,450, and ultimately $4,500.

Support levels warrant equal attention. A break below the December 11 high of $4,285 could trigger a corrective phase, with $4,250 and $4,200 representing intermediate downside objectives for stop-loss traders.

Key Takeaway

The interplay between Fed policy ambiguity, labor market weakness, and persistent geopolitical risks continues to support gold’s uptrend. While profit-taking has trimmed some of the week’s gains, XAU/USD’s technical structure and macro backdrop suggest the path of least resistance remains higher, barring a dramatic shift in sentiment around inflation expectations or geopolitical developments.