Gold (XAU/USD) prices retreated on Wednesday after hitting a new record high near $4,526 earlier in the day. Volatility increased amid thin trading volumes during the holiday season ahead of Christmas, prompting some profit-taking at higher levels. At the time of writing, gold (XAU/USD) was trading at around $4,470, up approximately 3% this week.

The bullion's historic rally this year has been remarkable by any measure, with prices surging more than 70% since the start of the year, putting gold on track for its strongest annual performance since 1979. This surge has been fueled by strong safe-haven demand amid ongoing geopolitical risks and economic uncertainties, as well as robust institutional and investment inflows.

Another key factor behind gold's historic rally has been the broad-based weakness of the US dollar (USD), driven by US President Donald Trump's protectionist trade rhetoric and the Federal Reserve's (Fed) easing of monetary policy.

The Federal Reserve cut interest rates by a cumulative 75 basis points in 2025. Markets also anticipate two further cuts next year. This situation has contributed to continued support for demand for the precious metal, as lower interest rates reduce the opportunity cost of holding non-income-generating assets like gold.

Looking ahead, gold may experience a period of consolidation in the near term, as the absence of new market catalysts and further profit-taking before the end of the year could exert downward pressure on prices. However, the overall uptrend remains strong, suggesting that the rally is likely to continue into 2026.

 

Market Factors: Fed Expectations and Geopolitical Situation Support Gold

Markets digested the last batch of key economic data before the holiday season. Initial jobless claims fell to 214,000 from 224,000 the previous week, below market expectations of 223,000. Continuing jobless claims, however, rose to 1.923 million, compared to 1.885 million the previous week, while the four-week moving average of initial jobless claims dipped slightly to 216,750 from 217,500.

On Tuesday, the U.S. Bureau of Economic Analysis released its preliminary estimate of third-quarter GDP, which had been delayed due to the recent government shutdown. The report showed the U.S. economy grew at an annualized rate of 4.3% in the third quarter, exceeding the previous estimate of 3.8% and market expectations of 3.3%.

The positive GDP figures contrasted with weaker U.S. data in other regions. Durable goods orders fell 2.2% in October, while industrial production declined 0.1% month-on-month in October before rebounding 0.2% in November. Meanwhile, the Conference Board's consumer confidence index slipped to 89.1 in December, from a revised 92.9 in November, keeping the US dollar under pressure.

The US Dollar Index (DXY), which tracks the value of the US dollar against a basket of six major currencies, is trading around 97.96, hovering above its lowest level since October 3.

On the monetary policy front, markets generally expect the Federal Reserve to leave interest rates unchanged at its January meeting. Chairman Jerome Powell stated at the December policy meeting that the Fed is "well-positioned to wait and see how the economy develops." The CME FedWatch tool indicates only a 13% probability of a rate cut in January. However, investors expect the central bank to return to an accommodative monetary policy later in the year, amid signs of slowing inflation and a weakening labor market.

Geopolitical tensions remain high, with the ongoing Russia-Ukraine conflict, persistent instability in the Middle East, and escalating tensions between the United States and Venezuela weighing on market sentiment.