Gold surpasses $4,550 and enters a correction phase; interest rate cuts in 2026 will determine the future direction

Record Highs Reach and Profit-Taking Pressure Intensifies

Gold(XAU/USD) approached an all-time high of $4,550 during Monday’s Asian session but subsequently declined due to some profit-taking. Trading volume has sharply decreased ahead of the year-end holiday season, leading to increased volatility. At the same time, a strengthening US dollar is exerting continued pressure on gold prices. The dollar’s rise makes gold relatively more expensive for non-dollar currency holders.

Nevertheless, gold has gained over 70% this year, achieving the best annual return since 1979. This indicates that safe-haven demand driven by inflation concerns and escalating geopolitical risks remains robust.

Technical Signals Suggest Need for Adjustment

The current gold chart shows the price is stably forming above the 100-day exponential moving average (EMA), indicating a healthy upward trend. Simultaneously, being near the upper band of the Bollinger Bands suggests there is still room for further gains.

However, the Relative Strength Index (RSI) has crossed above 70, signaling an overbought condition. This suggests that a proper correction may be needed before further upward movement. If the psychological resistance of $4,550 is broken, there is potential for prices to reach $4,600, but a retracement is quite likely beforehand.

In a bearish scenario, the December 23 low of $4,430 is expected to serve as the first support. If this level breaks, the price could fall further to the December 22 low of $4,338, and potentially to the December 17 low of $4,300.

Expectations of 2026 Rate Cuts Support the Uptrend

The US Federal Reserve (Fed) has cut interest rates three times this year. Markets are factoring in two additional rate cuts next year, with the CME FedWatch tool indicating an 18.3% probability of rate reductions.

Lower interest rates reduce the opportunity cost of holding gold, which is a non-yielding asset, thus positively supporting gold prices. As long as this monetary policy stance remains unchanged, a significant decline in gold prices is unlikely.

Macro Economic Environment Remains Favorable

US weekly jobless claims for the week ending December 20 totaled 214,000, better than previous estimates. This signals that the labor market has not fully weakened, which could limit the Fed’s urgency to cut rates, but also reduces the risk of a hard economic landing.

Additionally, progress in peace negotiations with Ukraine could ease geopolitical tensions. However, the lack of progress on territorial issues leaves long-term uncertainties. As long as these geopolitical risks persist, the preference for traditional safe assets like gold is likely to continue.

Gold Price Outlook: Short-Term Correction and Long-Term Bullishness

Gold prices are expected to undergo a correction phase in the short term to shed their overbought condition. However, the scenario of rate cuts in 2026 and ongoing geopolitical risks support the structural strength of gold. A period of sideways movement or slight decline can be viewed as a healthy correction.