Gold rallies further beyond $5,050 amid flight to safety, dovish Fed expectations
- Gold scales higher for the second straight day as renewed US-Iran tensions boost safe-haven demand.
- Fed rate cut bets keep the USD bulls on the defensive and also benefit the non-yielding yellow metal.
- Traders now look forward to the US ADP report and ISM Services PMI to grab short-term opportunities.
Gold (XAU/USD) attracts follow-through buying for the second consecutive day and surges past the $5,000 psychological mark during the Asian session on Wednesday amid the global flight to safety. Concerns over rising tensions between the US and Iran resurfaced following overnight reports that the US shot down an Iranian drone in the Arabian Sea. This forces investors to take refuge in traditional safe-haven assets, which, in turn, is seen as underpinning the precious metal.
The strong move up is further aided by prospects for lower US interest rates, which keep a lid on the recent US Dollar (USD) recovery from a four-year low and turn out to be another factor benefiting the non-yielding Gold. With the latest leg up, the XAU/USD pair has now recovered over $650 from the $4,400 neighborhood, or a nearly four-week low, touched on Monday. Traders now look forward to the US ADP report and the US ISM Services PMI for a fresh impetus.
Daily Digest Market Movers: Gold attracts safe-haven flows amid geopolitical risks as Fed rate cut bets undermine USD
- A US Central Command spokesman said on Monday that a US Navy fighter jet shot down an Iranian drone in self-defense after it moved toward the aircraft carrier USS Abraham Lincoln in the Arabian Sea. This undermines the optimism over the US-Iran nuclear talks later this week on Friday and assists the safe-haven Gold to register its biggest daily rise since November 2008.
- US President Donald Trump’s nomination of Kevin Warsh as the next Federal Reserve chair fueled speculations that the central bank will be less dovish than expected. Traders, however, are still pricing in the possibility of two more rate cuts by the Fed this year, which keeps the US Dollar bulls on the defensive and benefits the non-yielding bullion for the second consecutive day.
- Meanwhile, Fed Governor Stephen Miran said on Tuesday that the underlying inflation is not a problem and that the US central bank needs to cut rates by about a percentage point this year. Separately, Richmond Fed President Thomas Barkin noted that inflation remains above target, but further progress is expected, and the economy remains remarkably resilient.
- Trump on Tuesday signed a spending deal into law that restores lapsed funding for defense, healthcare, labor, education, housing, and other agencies, and temporarily extends funding for the Department of Homeland Security until February 13. This
- This ends a partial US government shutdown and gives lawmakers time to negotiate potential limits on his immigration crackdown.
- The closely watched US Nonfarm Payrolls report for January will not be released this Friday. However, Wednesday's release of the US ADP report on private-sector employment should offer a fresh insight into the health of the labor market. Apart from this, the US ISM Services PMI might influence the USD demand and provide some impetus to the XAU/USD pair.
Gold bulls now await sustained strength above 50-SMA on H4 before positioning for further gains
An intraday breakout through the 50% retracement level of the recent sharp corrective decline from the $5,600 neighborhood, or the all-time peak, could be seen as a fresh trigger for bullish traders. Some follow-through buying beyond the 50-period Simple Moving Average (SMA) would validate the constructive outlook and allow the Gold price to appreciate further. The Moving Average Convergence Divergence (MACD) line stands above the Signal line and in positive territory, with a widening positive histogram that suggests strengthening bullish momentum. The Relative Strength Index (RSI) prints 55.83 (neutral) and edges higher, aligning with an improving tone.
Bias leans mildly higher as the 50-period SMA’s nascent upturn supports dips and price action builds above it. Momentum improves, with MACD remaining positive and the histogram expanding, while the RSI holding above 50 reinforces a recovery stance; however, overhead Fibonacci resistance tempers follow-through. A sustained close beyond that barrier would open further upside, whereas a drop back below the moving average would undermine the bounce and shift focus back to recently reclaimed retracement territory.
(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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