XAU/USD Forecast: Gold price struggle to sustain key level $2,650 extends losses ahead of US Retail Sales data

• Gold price clings to the previous rebound above $2,650 ahead of US Retail Sales data.
• The US Dollar stays defensive with Treasury bond yields despite hopes of a hawkish Fed in 2025.
• Gold price looks for a fresh impetus amid neutral daily RSI while below 50-day SMA at $2,671

Going into the European session on Tuesday, the gold price (XAU/USD) is attracting some sellers and is drifting back toward the one-week low that was reached the previous day. Elevated US Treasury bond yields continue to be supported by expectations that the Federal Reserve (Fed) will adopt a more cautious posture on cutting interest rates, which serves as a tailwind for the US Dollar (USD).

This, in conjunction with the prevalent favorable sentiment in the equity markets, proves to be critical factors that induce capital outflows from the safe-haven precious metal.
Although the Gold price appears to have a limited downside, traders may choose to postpone placing new directional wagers around the non-yielding bullion until the critical FOMC decision is made, which will provide information about the future rate-cut path. Therefore, the market will concentrate on the accompanying policy statement, particularly the “dot plot,” and the remark delivered by Fed Chair Jerome Powell at the post-meeting press conference.

The USD and XAU/USD will be substantially influenced by the outlook. In anticipation of the critical central bank event risk, the North American session on Tuesday will evaluate the publication of the US Retail Sales figures for potential short-term opportunities.
A modest USD strength and elevated US bond yields are undermining the gold price.

On Monday, data indicated that a significant portion of the US economy experienced the fastest expansion in over three years. Indeed, the S&P Global preliminary US Services Purchase Managers Index (PMI) reached its highest level in 38 months in December, rising from 56.1 to 58.5. Furthermore, the Composite PMI witnessed a significant increase from 54.9 in November to 56.6, which represents a 33-month high. This cast a shadow over the preliminary.

US Manufacturing PMI, which plummeted to a three-month low of 48.3 in December, and reinforced market expectations for a less dovish Federal Reserve.
The policies of US President-elect Donald Trump appear to have the potential to increase inflation and compel the Federal Reserve to suspend its rate-cutting cycle, according to investors. This increased the yield on the benchmark 10-year US government bond to its greatest level since November 22.

The CME Group’s FedWatch Tool indicates that the markets have entirely accounted for the possibility of a 25-basis-point rate cut from the Federal Reserve on Wednesday. As a result, the supporters of the US Dollar remain on the defensive and the XAU/USD receives support during the Asian session on Tuesday.

In response to Pyongyang’s financial activities and military assistance to Moscow, the United States implemented new sanctions against Russia and North Korea on Monday, according to the Treasury Department. Yet another ballistic missile attack by the Houthis of Yemen is expected to prompt a response from Israel.

The monthly Retail Sales figures for the United States are anticipated by traders for short-term opportunities later in the North American session. The outcome of the FOMC policy meeting on Wednesday, however, will continue to be the paramount concern.

If the $2,644-$2,643 support is breached, the price of gold may accelerate its decline.
From a technical standpoint, the $2,644-2,643 region, or a one-week low that was reached on Monday, appears to be protecting the immediate downside in advance of the $2,625 region. The monthly trough, which is located in the $2,614 zone, and the $2,600 mark are closely followed by this. If the latter is decisively breached, it will be perceived as a new catalyst for adverse traders and could potentially lead to a significant depreciation in the price of gold.

In contrast, the $2,664-2,666 region, or the overnight swing high, may continue to function as a robust immediate barrier in advance of the $2,677 area. A sustained strength that surpasses the latter should enable the Gold price to reclaim the round figure of $2,700. It is probable that the XAU/USD will recommence its upward trajectory above the $2,726 zone, which is the location of the monthly swing high. The subsequent upward movement could extend further.