Gold prices supported by dollar weakness, technical strength continues… Volatility ahead of PCE release

Technically Still Upward Trending

XAU/USD regained its high-end zone for the first time in 7 weeks, trading above $4,300 during Wednesday’s Asian session. On the 4-hour chart, it is supported above the 100-day exponential moving average(EMA), and the Bollinger Bands are expanding. The 14-day RSI remains above the midline, indicating that short-term momentum is still intact.

The upper resistance is at the Bollinger Band upper limit of $4,305. Breaking through this level could increase the likelihood of retesting the December 15 high of $4,350. If buying continues beyond that, the all-time high of $4,381 could come into view. Conversely, if a correction begins, the first support is at the December 16 low of $4,271, with the 100-day EMA at $4,220 serving as a defensive line below.

Weak US Labor Market and Dollar Pressure

The rise in gold prices is driven by a weakening dollar. According to the US Bureau of Labor Statistics’ November report, non-farm payrolls(NFP) increased by 64,000, an improvement from October’s 105,000 decrease, but still slightly above market expectations(50,000).

More noteworthy is the quality of employment. The unemployment rate rose from 4.4% to 4.6%, and the average hourly wage growth sharply slowed from 0.4% to 0.1% month-over-month. Retail sales also stagnated at 0.0% in October, falling short of the consensus(0.1%). These signals suggest a cooling US economy, creating an environment where the Fed’s additional rate cuts are not entirely ruled out.

As interest rates fall, the opportunity cost of holding zero-yield assets like gold decreases, which is positive for gold prices. The Fed cut interest rates by 25 basis points at last week’s policy meeting, marking the third cut this year. However, internal opinions within the Fed are divided on whether to cut again in 2026. The median of Fed officials points to one more cut next year, but some members exclude further reductions.

Chain of Variables from Wednesday Fed Remarks to Friday PCE Release

Several variables are at play moving forward. On Wednesday, speeches are scheduled from New York Fed President John Williams and Atlanta Fed President Raphael Bostic. If they adopt a more hawkish tone, the dollar could rebound, putting short-term pressure on gold.

More importantly, the US November Consumer Price Index(CPI) and Personal Consumption Expenditures(PCE) releases are scheduled for Thursday and Friday, respectively. The PCE data is a key factor in determining how much further the Fed can cut interest rates, and could significantly reshape market expectations.

Currently, the market anticipates two rate cuts next year, with the CME FedWatch tool showing a 75.6% probability of holding rates steady at the January meeting, up from 70% a week ago. This reflects a gradually increasing recognition of labor market weakness.

Trump’s Next Fed Chair Nomination as a Variable

According to the Wall Street Journal, President Donald Trump is scheduled to interview Federal Reserve Board member Christopher Waller on Wednesday regarding the next Fed Chair. Changes in policy stance with a new Chair could also influence market sentiment.

Ultimately, gold is likely to maintain its technical strength within a range centered around $4,305. The next direction will be determined after the two major events: the PCE release and Fed comments.