Gold (XAU/USD) rallied more than 2% on Monday (December 22nd), hitting a record high of $4,442 amid rising geopolitical tensions and expectations that the Federal Reserve (Fed) will continue to cut interest rates next year, pushing US Treasury yields lower. At the time of writing, XAU/USD was trading at $4,435, having rebounded from a daily low of $4,338.

Gold prices surged more than 2% amid rising tensions in the Middle East and Venezuela, while markets expect a deeper Fed rate cut for 2026.

Tensions in the Caribbean escalated after US President Donald Trump announced last week a "blockade" of oil tankers leaving or entering Venezuela. Speculation about a US ground military operation in the country remains high as Trump pressures the government of President Nicolas Maduro. Furthermore, renewed tensions between Iran and Israel are pushing gold prices higher.

The weakening US dollar also boosted gold bullion prices, as the US dollar fell 0.40%, according to the US Dollar Index (DXY). The DXY, which tracks the dollar's performance against six other currencies, traded below its opening price of 98.32.

Meanwhile, currency markets have priced in a 59 basis point monetary policy easing by the US central bank for 2026, according to Capital Edge interest rate probability data.

A thin economic schedule in the US has traders scrambling to await statements from Fed officials. Fed Governor Stephen Miran reiterated his dovish stance, contradicting Cleveland Fed President Beth Hammack, who revealed that November's Consumer Price Index (CPI) data showed irregularities, indicating that the decline in inflation may be temporary.

Looking ahead, the US economic schedule will be busy on Tuesday due to the shortened week due to the Christmas holiday. Traders will be watching the ADP four-week moving average employment change, the preliminary third-quarter growth figures, October durable goods orders, and industrial production data for October and November. (alg)

Source: FXstreet