Gold advances on softer USD; upside seems limited amid easing geopolitical tensions
- Gold attracts some buyers on Tuesday as the USD pauses the recent recovery from a four-year low.
- Kevin Warsh’s nomination as the next Fed chair could limit USD losses and cap the precious metal.
- Easing geopolitical and trade tensions might keep a lid on any further gains for the XAU/USD pair.
Gold (XAU/USD) builds on the previous day's bounce from the $4,400 neighborhood, or the lowest level since January 6, and gains some follow-through traction during the Asian session on Tuesday. The commodity, however, struggles to capitalize on the momentum and trims a part of intraday gains to the $4,856 region amid a combination of negative factors. US President Donald Trump’s nomination of Kevin Warsh as the next Federal Reserve (Fed) chair cleared a major point of uncertainty. Adding to this, the upbeat US ISM Manufacturing PMI released on Monday assists the US Dollar (USD) to preserve its recent recovery gains from a four-year low, which, in turn, is seen acting as a headwind for the bullion.
Meanwhile, signs of de-escalation of US-Iran tensions over the latter's nuclear program, along with the US-India trade deal and the CME Group's decision to raise margin requirements on precious metals futures, turn out to be other bearish developments for the Gold. This, along with a generally positive tone around the equity markets, warrants caution for the XAU/USD bulls before positioning for any further gains. Hence, it will be prudent to wait for strong follow-through buying before confirming that the recent sharp corrective slide from the $5,600 mark, or the record high touched last week, has run its course. The US JOLTS Job Openings data could provide some impetus later during the North American session.
Daily Digest Market Movers: Gold benefits from a softer USD; bulls seem non-committal amid positive risk tone
- US President Donald Trump on Friday nominated Kevin Warsh to succeed Jerome Powell as the next Federal Reserve Chair in May, pending Senate approval. Warsh’s background as a hawk suggests that he would remain vigilant if inflation expectations begin to rise.
- Adding to this, the CME Group said over the weekend that it would increase margins on precious metals futures starting from the close of markets on Monday. This prompted liquidation for the second straight day and dragged the Gold to a four-week low on Monday.
- On the economic data front, the Institute for Supply Management reported on Monday that the US factory activity grew for the first time in a year. In fact, the Manufacturing PMI rose to 52.6 in January, marking a significant recovery from 47.9 in the previous month.
- Meanwhile, Trump announced on Monday that the US and India have reached a trade deal and will immediately move to lower tariffs on each other’s goods. Moreover, Iran and the US are expected to resume nuclear talks on Friday, further boosting investors' confidence.
- The US Dollar ticks lower on Tuesday and moves away from an over one-week high, touched the previous day, lending some support to the Gold during the Asian session. The aforementioned negative factors, however, might keep a lid on any further gains for the bullion.
- Traders on Tuesday will take cues from the release of the US JOLTS Job Openings data. This will be followed by the US ADP report on private-sector employment and US ISM Services PMI on Wednesday, which, along with Fed speak, will drive the USD and the XAU/USD pair.
Gold's mixed technical setup warrants caution before placing aggressive directional bets
The commodity showed resilience below the 50-day Simple Moving Average (SMA) and bounced off the 50% retracement level of the July 2025-January 2026 rally on Monday. The upward slope of the SMA suggests dips could be supported. Adding to this, the XAU/USD pair currently holds above the 38.2% Fibonacci retracement level, pegged around the $4,645-4,650 area, and should offer nearby support. Moreover, the Relative Strength Index (RSI) sits at 51.91 and edges higher, hinting at stabilizing momentum.
However, the Moving Average Convergence Divergence (MACD) line stands below the Signal line and below zero, reinforcing a bearish tone. The negative histogram widens, pointing to intensifying downward momentum. Meanwhile, any further move up could refocus the 23.6% retracement at $4,995.94, while failure to hold the first support would leave the recovery vulnerable to further consolidation.
(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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