XAU/USD Stages Comeback Amid Defensive Flows and Lower Rate Expectations

2026-01-04 11:28:04

Yellow metal bounces back in Tuesday’s Asian trading following heavy losses. Gold has rebounded above the $4,350 level during early Asian hours, recouping some of the significant losses suffered in the previous session when prices tumbled 4.5%—marking the worst single-day performance since October. The rebound reflects renewed interest from investors seeking defensive assets as geopolitical risks persist and expectations for Fed interest rate reductions in 2026 gain traction.

What’s Driving the Recovery?

The sharp pullback that preceded today’s recovery was largely attributable to heightened margin requirements imposed by the CME Group on gold, silver, and other precious metals futures contracts. These regulatory adjustments forced widespread position liquidation and portfolio adjustments as market participants reassessed their exposure heading into the year-end period.

However, the downside appears limited given the macroeconomic backdrop. Anticipated Federal Reserve rate cuts in the coming year could diminish the opportunity cost associated with holding non-yielding assets like gold. Additionally, persistent international tensions and economic uncertainties are likely to sustain demand for traditional safe-haven instruments. With trading activity expected to remain subdued due to year-end holidays, volatility may depend on event catalysts such as the scheduled release of FOMC Minutes later in the day.

Recent Market Developments

Recent headlines underscore the fragile global backdrop supporting gold’s appeal. Escalating tensions between Russia and Ukraine, rising concerns about Federal Reserve independence amid political commentary, and stronger-than-expected US housing data have created mixed signals for risk sentiment. The CME FedWatch tool currently reflects only a 16.1% probability of a rate cut at January’s Fed meeting, suggesting markets remain cautious about the timing of policy shifts.

Technical Outlook: Mixed Signals Ahead

On the price chart, gold maintains a constructive posture with quotation residing above its 100-day EMA on a daily basis, while Bollinger Bands continue to expand. However, momentum indicators present a more nuanced picture—the 14-day RSI hovers near the 50 midpoint, suggesting equilibrium between buying and selling pressure rather than directional conviction.

Resistance levels to monitor:

Upper Bollinger Band boundary at $4,520
All-time high near $4,550
Psychological resistance at $4,600

Support levels to watch:

December 29 low at $4,305-$4,300 zone
December 16 low at $4,271

A break above the $4,520 level would likely reinvigorate bullish momentum toward the $4,550-$4,600 region. Conversely, a sustained decline below $4,300 could signal broader corrective pressure targeting the $4,271 support zone. Near-term consolidation remains the most probable outcome given elevated RSI positioning, which suggests traders should prepare for sideways movement before the next directional move materializes.

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