Gold extended its gains for the second consecutive day in Asian trading on Tuesday, rising to a roughly one-and-a-half-week high. Market participants gradually increased their bets on a Federal Reserve rate cut in December, weakening the dollar's gains last week and thus providing a more favorable environment for holding gold, a non-interest-bearing asset.

New York Fed President John Williams said interest rates are likely to be lowered in the near term without threatening the inflation target. Fed Governor Christopher Waller noted that the weakness in the labor market supports a further 25 basis point cut in December.

The significantly increased probability of an interest rate cut has become the main driver of the current rise in gold prices. According to the CME FedWatch tool, the market's implied probability of a 25 basis point rate cut in December is now close to 80%. This shift has significantly reduced the opportunity cost of holding gold, thereby attracting inflows of funds, including safe-haven and allocation-oriented buying.

Furthermore, escalating geopolitical risks continue to provide fundamental support for gold. The latest escalation of the Russia-Ukraine conflict and a new round of conflicts in the Middle East have both increased safe-haven demand, strengthening gold's appeal as a risk hedging tool.

However, the overall positive trend in global risk assets has somewhat curbed aggressive buying of gold—funds are maintaining a dynamic balance between risk and safe-haven assets. Short-term drivers will depend on a series of key US economic data releases.

The market is awaiting the delayed release of US Producer Price Index (PPI) and retail sales data, which will directly impact the strength of the US dollar and short-term gold price fluctuations. Significantly stronger data could boost the dollar and put downward pressure on gold; weaker data would further confirm the path of interest rate cuts, thus benefiting gold prices.

From a technical perspective, the intraday/4-hour technical structure leans towards a continuation of the bullish trend, but the risk of a pullback should be noted. The support zone formed by an upward trend line extending from the end of October and the 200-period exponential moving average (EMA) on the 4-hour chart has been validated.

Short-term resistance is concentrated around the $4180 area, above which lies the key psychological level of $4200. Further upside targets the $4250 area near the monthly swing high. A pullback to the $4100 area should provide initial support.

If the price falls below $4,100, there is deeper multiple support around $4,030. A break below this level would shift the short-term bias to bearish and could drag the price down to around $4,000.


Editor's Note:

The current rise in gold prices is driven by both expectations of monetary policy and the support of ongoing geopolitical tensions, but these two factors are offsetting: expectations of interest rate cuts are beneficial to gold, while risk appetite and strong data may suppress gold prices.

Given the high degree of uncertainty surrounding data and negotiation progress in the short term, gold is likely to remain range-bound. Close attention should be paid to any sudden changes in PPI/retail sales results and geopolitical situations.