Shaken by the confirmed gold profit sell-off... Waiting for the release of US economic indicators

Investor Sentiment Remains Cautious, Gold Prices Drop 0.65%, Falling Below $4,210 - Ahead of ADP and ISM Service Sector Data Releases, Position Reduction Trend Becomes Visible - Expectations of Fed Rate Cuts in December Jump to 89%… Serving as a Safety Net

In the early hours of Wednesday’s Asian market open, international gold(XAU/USD) experienced a correction phase due to a surge of profit-taking sales on short-term gains. Following a sharp rally last week, traders who are looking to close their positions are selling, and market participants are showing cautious attitudes ahead of key economic data releases.

On this day, gold prices fell about 0.65% compared to the previous day’s closing, fluctuating around $4,210. Profit-taking orders, which had been tracking the recent rapid rise, acted as resistance at the upper end, and ahead of the scheduled release of the US ADP private employment report and ISM Service PMI, a trend of reducing existing positions is forming.

Among market participants, a more cautious stance than aggressive trading has become prevalent. Investors are reducing their betting sizes and waiting for confirmation of future directions. However, market experts interpret this price adjustment not as a simple trend reversal but as a ‘technical normal correction.’

Expectations of Fed Rate Cuts Support the Lower Bound Firmly

As the December Federal Open Market Committee (FOMC) meeting approaches, market expectations for a rate cut are strongly influencing sentiment. According to the Chicago Mercantile Exchange (CME) FedWatch system, the futures market assesses about an 89% probability that the Fed will cut the benchmark rate by 25 basis points (0.25%) at the December 9-10 meeting. This has rapidly increased from about 71% a week ago.

Rate cuts enhance the relative attractiveness of gold, which does not generate interest income. Therefore, expectations of rate cuts are widely viewed as serving as a safety net for gold prices during this correction phase. Peter Grant, senior precious metals strategist at Zaner Metals, stated, “The current price correction is mainly driven by short-term profit-taking,” and added, “The market’s fundamental view on rate cuts remains solid, so a sharp decline in prices is unlikely.”

Geopolitical Tensions Could Act as a Double-Edged Sword

Global political risks continue to be a significant variable in the gold market. With US Special Envoy Steve Wittekopf reportedly discussing peace negotiations between Russian President Vladimir Putin and Ukraine this week, the demand for safe assets could fluctuate significantly depending on the progress of negotiations.

If tensions escalate during negotiations, there is a possibility of renewed gold buying. Conversely, if a peace mood develops, risk-on sentiment may dominate, leading to downward pressure on gold prices, as investors prefer risk assets.

Future Outlook: Navigating Short-Term Corrections and Trend Search

Going forward, the gold market is expected to oscillate between profit-taking sales and the results of US employment and service sector data, as well as progress in Ukraine negotiations, seeking a trend. Given the structural support from expectations of Fed rate cuts, sharp declines are expected to be limited.