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Gold has started the month of December higher, rising around 1% by mid-morning London trade. The gains come after the metal recorded a 4-month winning streak in November thanks to a sharp 3.75% rise last week. Gold was still some 3% below its all-time high of $4381 hit in October, while silver broke to new unchartered territories overnight following last week’s impressive 12.8% gains. The key question is whether gold will now kick on from here, and find support from a weaker US dollar, or will rising bond yields in Japan also hit gold as it has equity markets overnight. As traders, we will have to be prepared for both scenarios. 

What has supported gold prices?

From a fundamental standpoint, the prospect of imminent Fed rate cuts remains one of the key bullish drivers for the price of gold, reinforced by ongoing political and geopolitical uncertainties around the world. At the same time, the demand side of the equation has grown increasingly supportive, particularly amid continued discussions of de-dollarisation and the sustained acceleration of gold purchases by central banks globally, most notably in China. 

What factors could negatively impact gold prices?

But whether the PBOC buying will continue at levels remain to be seen. Any signs of weakening demand from the central bank could see traders unwind their leveraged long bets, fast.

Meanwhile, geopolitical risk premium from the Ukraine war has probably eased, with constructive discussions between Russia and Ukraine’s allies to potentially end the war soon. If, hopefully, the war ends, this couldsap demand for safe haven assets. The renewed push to end the Ukraine war comes hot on the heels of the recent ceasefire in Gaza and the extension of the trade war truce between China and the US. These developments should lessen the appeal of haven assets you’d think. However, this hasn’t been reflected in gold prices in a meaningful way yet. The softening of US dollar and bond yields as a result of weaker US data has certainly played a part in the metals’ resilience. But could we soon witness a more volatile environment for gold?

Meanwhile, keep an eye on rising bond yields in Japan, where the selling of bonds gathered pace on hawkish comments from the BoJ governor overnight. If Japanese yields rise further, then this could cause sorts of volatility across financial markets. Rising yields while the government is unleashing a huge fiscal stimulus package, financed by yet more issuance of debt, is not a great sign. This is worrying some investors who are concerned that increased spending by the government could strain Japan’s finances. Should the bond market rout continue, this will push up Japanese yields and borrowing costs for the government and raise serious concerns about Japanese assets, and potentially trigger a reverse carry trade that could hurt global markets, and other leveraged positions including gold and Bitcoin prices. 

Gold technical analysis

Momentum is currently strong for gold, after the metal closed higher for a 4th consecutive month in November and has started December on the front foot. 

On the daily chart, the trend remains firmly bullish, supported by rising moving averages. The 21-day EMA is sloping higher again following a period of consolidation. Importantly, gold has also broken out of a converging trendline triangle pattern — a classic triangle breakout.

The key question now is: can this breakout hold, or does it turn into a false break? At the moment, there is limited evidence to suggest failure, but equity market weakness remains the primary risk facing gold prices.

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But now gold is now testing a significant resistance zone between $4245 and $4275. This area has recently acted as both support and resistance, and on the hourly chart it aligns with the last major wave of selling that began in late October. This makes the zone a key decision point.

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A rejection here could see gold weaken from this resistance and pull back toward $4200 initially, with the next support level coming in around $4168. However, the priority right now is to see clear evidence of selling pressure forming at resistance. Until that appears, it’s premature to confidently discuss deeper downside.

For the time being, given strong upside momentum and silver’s breakout to fresh all-time highs, the benefit of the doubt remains with the bulls. That said, continued weakness in equity markets today poses a risk, as stocks and gold have shown a positive correlation in recent years, meaning falling equities could drag gold lower as well.

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