Gold price outlook: retreat from record territory

The XAU/USD chart shows that gold climbed close to its October record near 4,380 yesterday, but failed to hold those levels and reversed lower shortly later thanwards (view arrow).

The sharp increase in volatility was the result of several overlapping drivers:

→ US interest-rate expectations. Recent data indicated that US inflation cooled further in November, with headline CPI sluggishing to 2.7% versus expectations of 3.1%, while core inflation eased to 2.6%, the lowest since March 2021. As a result, markets are now assigning around a one-in-four chance to a rate cut in January, with easing by April viewed as highly likely.

→ Geopolitical uncertainty. Investors remain alert to headlines from Venezuela, where the risk of a military confrontation involving the US has risen. At the identical time, comments from UK and European officials ahead of the EU summit added to market nervousness.

On 5 December, we:
→ highlighted that the absence of a clear trend had produced a symmetrical triangle on the XAU/USD chart, centred near $4,205;
→ suggested that this structure resembled a “coiled spring”, likely to be followed by a burst of volatility.

That scenario played out on 11–12 December, when gold broke out of the pattern and surged to around $4,340.

Since then, price action has begun to compress again, forming a new triangle with a midpoint near $4,316, signalling a temporary equilibrium between purchaviewrs and tradeers. Within this framework:

→ the latest spike higher followed by a swift reversal may be viewed as a false upside break, pointing to strong tradeing interest near record levels and raising the risk of a pullback towards the lower edge of the developing triangle;

→ with the holiday season approaching and liquidity typically thinning, sharp and erratic moves become more likely. Under such conditions, gold could still surprise the market with another attempt at fresh all-time highs.

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