Gold is holding its profit-taking pullback from fresh record highs just above $4,600 on Monday, starting the week with a bang, courtesy of escalating geopolitical tensions and intensifying concerns over the US Federal Reserve’s (Fed) independence, which both induce a full-fledged risk-off environment.
Investors flock to safety in the traditional store of value, Gold, digesting the weekend’s reports that US President Donald Trump is weighing a series of potential military options in Iran, following days of civil unrest and should the Iranian regime use lethal force against civilians.
Further, ongoing tensions between Russia and Ukraine also add to the risk-off market mood. The United Nations Security Council called for an emergency meeting on Monday after Russia used its new Oreshnik hypersonic ballistic missile on Friday in a major strike on Ukraine.
Moreover, markets also remain wary over the Fed’s independence after US federal prosecutors opened a criminal investigation into Chair Jerome Powell regarding the central bank’s renovation of its Washington headquarters.
In response, Powell called out on Trump’s attacks, saying that the” new threat is not about his testimony or the renovation project but a pretext.”
These factors, combined with increased odds of interest rate cuts by the Fed this year, continue to undermine the USD, while boosting the sentiment around the non-yielding Gold.
Data on Friday showed that Nonfarm Payrolls increased by 50,000 jobs last month after a downwardly revised rise of 56,000 in November and against the expected gain of 60,000 jobs. The Unemployment Rate dipped to 4.4% in December, compared to the estimated 4.5% reading.
Attention now turns to the US Consumer Price Index (CPI) data for December, which will inject fresh volatility in the market. The data will be critical to gauging the chance of a March Fed rate cut, the odds of which currently sit at about 30%, according to the CME Group’s FedWatch tool.
In the meantime, geopolitical developments and worries over the Fed’s autonomy will continue to drive Gold price action.
In the daily chart, XAU/USD trades at $4,575.47. The 21- and 50-day Simple Moving Averages (SMAs) advance and remain below price, underscoring firm bullish momentum. Shorter SMAs sit above the 100- and 200-day ones, with all slopes rising and buyers in control. The 21-day SMA at $4,403.01 offers nearby dynamic support. The Relative Strength Index (14) prints 69 (near overbought), in line with strong momentum; a pause could emerge if it pushes above 70. A dip would target the 50-day SMA at $4,243.70.
Longer-term SMAs reinforce the uptrend as the 100-day rises to $4,032.27 and the 200-day to $3,674.30, both well beneath price. The bullish alignment of shorter above longer averages supports an extension while pullbacks hold above the 21-day and 50-day SMAs. RSI at 69 stays just below overbought, keeping momentum strong but leaving room for brief consolidation if it cools toward 60. Initial support is layered at $4,403.01–$4,243.70, while the broader bullish bias would persist above the rising 100-day SMA.
(The technical analysis of this story was written with the help of an AI tool)
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
