Fed Cut Odds Hit 80% as Tight Triangle Signals Major Breakout in Gold

Gold has eased slightly in early European trade, softening from it’s recent two-week high to sit around the US$4,150 level. Volumes remain thin coming out of the US Thanksgiving break, and even subtle shifts in market sentiment have been enough to trim some of gold’s latest momentum.

Despite the pullback, the broader picture for gold remains constructive. Expectations for lower US interest rates continue to firm, the US dollar remains on the back foot, and price action is tightening into a classic breakout formation.

The CME FedWatch Tool now shows markets assigning an 80% probability to a 25-basis-point rate cut at the Fed’s December meeting. Investors have been quick to embrace the Fed’s increasingly dovish messaging:

• John Williams, New York Fed President, reiterated that rates can be eased without jeopardising progress on inflation.
• Christopher Waller noted ongoing labour market softness that may justify another cut.
• Stephen Miran highlighted that broader economic slowing may require a shift back toward neutral policy settings.

Normally, a softer US dollar would fuel additional upside for gold. But a small lift in risk appetite, helped by the quiet Thanksgiving trading environment, has kept bullion from extending its latest rally.

Tensions across several geopolitical hotspots eased this week, encouraging a mild rotation back into equities and risk assets. With risk appetite improving, safe-haven inflows into gold moderated. Importantly, the move looks tactical rather than structural; the underlying macro backdrop for gold remains supportive.

Gold continues to trade within a tightening symmetrical triangle, reflecting a period of compressed volatility ahead of a larger directional move.

Key levels to watch:

• Resistance:
   
  • Triangle top near US$4,176 
  • Break above exposes US$4,242, then US$4,313
•  
• Support:
   
  • Rising trendline and 20-EMA meeting around US$4,113 
  • Higher-low structure remains intact from the US$4,041 zone

Momentum indicators are constructive, with RSI around 59, strong but not overstretched. Gold holding above the 20-EMA reinforces the case that bulls are still in control.

With the triangle narrowing quickly, traders aren’t likely to wait long for gold to choose a direction. A dovish December Fed meeting could easily be the catalyst.