Gold advances to one-week top amid flight to safety, Fed rate cut bets
- Gold builds on the overnight gains as rising geopolitical risks underpin safe-haven demand.
- Dovish Fed bets drag the USD away from a multi-week high and benefit the XAU/USD pair.
- The fundamental backdrop favors bulls as the focus shifts to the US NFP report on Friday.
Gold (XAU/USD) attracts dip-buyers near the $4,428-4,427 region and climbs to a one-week high during the Asian session on Tuesday amid a combination of supporting factors. The US military strikes in Venezuela, heightened political tensions between Saudi Arabia and the UAE, the unrest in Iran, and the protracted Russia-Ukraine war keep geopolitical risks in play. This, in turn, is seen underpinning the safe-haven bullion, which, along with dovish US Federal Reserve (Fed) expectations, remains supportive of the positive momentum.
In fact, traders are still pricing in the possibility of two more interest rate cuts by the US central bank this year, and the bets were reaffirmed by Monday's mixed US PMIs for December. Moreover, concerns about the Fed's independence under US President Donald Trump's administration drag the US Dollar (USD) away from a nearly four-week top set on Monday and further benefit the non-yielding Gold. Traders keenly await the US Nonfarm Payrolls (NFP) report on Friday for more cues about the Fed's rate-cut path and some meaningful impetus.
Daily Digest Market Movers: Gold draws support from safe-haven flows, Fed rate cut bets, softer USD
- President Donald Trump said on Sunday that the US might launch a second military strike on Venezuela if the remaining members of the administration do not cooperate with his efforts to get the country fixed. Trump further warned that Colombia and Mexico could also face military action if they do not reduce the flow of illicit drugs to the US.
- The developments raised concerns about regional instability in Latin America. Separately, Saudi Arabia publicly accused the United Arab Emirates of undermining its national security. This, along with the lack of progress in the Russia-Ukraine peace deal, continues to underpin the safe-haven Gold price for the second consecutive day.
- On the economic data front, the S&P Global reported on Monday that the US Manufacturing PMI held steady at 51.8, pointing to continued expansion. In contrast, the Institute for Supply Management's (ISM) Manufacturing PMI declined to 47.9 last month, from 48.2 in November, and indicated persistent contraction in the business activity.
- The data does little to temper dovish expectations, which drags the US Dollar away from a nearly four-week high touched on Monday and turns out to be another factor that benefits the non-yielding yellow metal. In fact, the Fed is expected to lower borrowing costs in March and deliver one more interest rate cut by the end of this year.
- Traders now look forward to this week's other US macroeconomic indicators, scheduled at the start of a new month, for more cues about the Fed's rate-cut path. The focus, however, will remain on the US Nonfarm Payrolls report on Friday, which will drive the USD in the near-term and provide a fresh directional impetus to bullion.
Gold seems poised to climb further; breakout through $4,445-4,450 remains in play
From a technical perspective, the overnight breakout through the 100-hour Simple Moving Average (SMA) and a subsequent move beyond the $4,445-4,450 congestion zone could be seen as a key trigger for the XAU/USD bulls. The Moving Average Convergence Divergence (MACD) histogram has turned positive and inches higher on the 1-hour chart, placing the MACD line marginally above the signal line near the zero mark and suggesting improving momentum.
Meanwhile, the RSI stands at 68 (near overbought), rising from mid-range and supporting firm upside momentum. A push through 70 would strengthen the bull case, while failure to do so could cap gains and encourage consolidation. With price holding above the rising 100-hour SMA and MACD just positive, dips could remain shallow and the near-term bias would stay positive. The 100-hour SMA stands at $4,373.28 and should offer dynamic support.
(The technical analysis of this story was written with the help of an AI tool)
Gold FAQs
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.
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