Why Is Gold Pulling Back Today? Profit-Taking and Dollar Strength Take Center Stage

Gold (XAU/USD) retreated below the $4,350 level during Asian trading Thursday, breaking its recent seven-week rally as investors took profits and the US Dollar surged. The sudden pullback caught many traders’ attention, but the downside appears limited given broader market dynamics.

The Immediate Pressure: What’s Driving the Fall

The yellow metal faces near-term headwinds from two main forces. First, traders are locking in gains after the recent strong run, a classic market behavior when an asset reaches overbought conditions. Second, the US Dollar has rebounded, making gold more expensive for international buyers and creating a inverse relationship that pressures prices.

However, this weakness may be shallow. The prior US employment data reinforced expectations for continued Fed rate cuts, which typically supports gold by reducing the opportunity cost of holding a non-yielding asset. Additionally, geopolitical tensions have escalated—Venezuela’s navy is now escorting oil shipments amid US blockade threats—a development that historically bolsters safe-haven demand for precious metals.

Market Catalysts Coming Up: The CPI Report

All eyes turn to Thursday’s Consumer Price Index release, with the headline CPI expected to show a 3.1% year-over-year increase in November, while core CPI is projected at 3.0% YoY. This inflation data could be the key to unlocking the next directional move for gold prices.

Fed policy signals remain mixed. Governor Christopher Waller recently voiced support for further rate cuts to normalize policy, though he cautioned against rushing given persistent inflation concerns. Meanwhile, Atlanta Fed President Raphael Bostic struck a more hawkish tone, opposing last week’s rate cut and expressing skepticism about 2025 cuts unless inflation declines materially.

The Fed funds futures market now prices in a 31% probability of a rate cut next month, up from 22% before the latest jobs report. This shift reflects market reassessment following November’s disappointing Nonfarm Payrolls increase of just 64,000, with unemployment ticking up to 4.6%.

Technical Setup: Room to Run Higher

On the technical side, gold maintains constructive underpinnings despite today’s retreat. The four-hour chart shows the precious metal trading above its 100-day Exponential Moving Average, a key support level. The Bollinger Bands are widening, and the 14-day RSI sits above the midline, both suggesting upside momentum could re-establish.

If bulls reclaim the upper Bollinger Band boundary near $4,352, XAU/USD could target the previous all-time high of $4,381, with the psychological $4,400 level as a secondary objective. Conversely, a break below the December 17 low of $4,300 could open the door to support at $4,271, with the 100-day EMA at $4,233 offering additional downside protection.

The combination of safe-haven demand, Fed rate cut expectations, and solid technical positioning suggests that today’s pullback may represent a buying opportunity rather than a trend reversal for gold investors monitoring longer-term positions.