Gold remains below $5,000 as geopolitical risks counter hawkish FOMC Minutes
- Gold struggles to capitalize on the previous day’s strong move up amid mixed fundamental cues.
- The USD preserves hawkish FOMC-inspired gains and acts as a headwind for the precious metal.
- Geopolitical tensions offer some support to the commodity and should limit any meaningful slide.
Gold (XAU/USD) consolidates during the Asian session on Thursday and remains below the $5,000 psychological mark as traders remain on the sidelines amid mixed cues. The US Dollar (USD) preserves its strong gains to over a one-week high in the wake of somewhat hawkish Minutes of the US Federal Reserve’s (Fed) January monetary policy meeting. This, in turn, is seen as a key factor undermining the non-yielding yellow metal.
In fact, the minutes revealed that policymakers remain deeply divided over the necessity and timing of further interest rate cuts. Several Fed officials indicated that more rate cuts could be warranted if inflation declines as expected, while others cautioned that easing too early could compromise the central bank's 2% inflation target. This followed the upbeat US data, which showed that Industrial Production increased more than anticipated in January and manufacturing output rose by the most in 11 months, backing the case for the Fed to hold interest rates steady.
The outlook, in turn, triggered a sharp rise in the US Treasury bond yields and provided a goodish lift to the USD. That said, markets are still pricing in the possibility of three 25 basis points (bps) Fed rate cuts this year. Apart from this, threats to the Fed's independence cap the upside for the USD and offers some support to the Gold. This, along with geopolitical tensions, acts as a tailwind for the safe-haven precious metal, warranting caution for aggressive bearish traders and making it prudent to wait for some follow-through selling before positioning for further losses.
The third round of US-mediated negotiations between Ukraine and Russia concluded in Geneva on Wednesday without any major breakthrough. This underscores that substantive disagreements remain over the status of eastern Ukrainian territories occupied by Russian forces. Furthermore, reports suggest that the US military is ready to attack Iran as early as this weekend. Although US President Donald Trump has not made a final decision yet on whether to authorize an armed confrontation, this keeps geopolitical risks in play and could support the safe-haven Gold.
Traders now look to Thursday's US economic docket – featuring the release of Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and Pending Home Sales data. Apart from this, speeches from influential FOMC members will drive the USD and the GBP/USD pair later during the North American session. The focus, however, will remain glued to the US Personal Consumption Expenditure (PCE) Price Index, due on Friday, which should provide cues about the Fed's rate-cut path. This, in turn, will drive the USD and provide a fresh impetus to the Gold price.
XAU/USD 1-hour chart
Gold needs to find acceptance above $5,000 to back the case for further gains
The commodity now seems to have found acceptance above the 100-hour Simple Moving Average (SMA), though the overnight failure to find acceptance above the $5,000 mark warrants caution for bullish traders. Moreover, the 100-hour SMA slopes downward, underscoring lingering bearish pressure. Moreover, the Moving Average Convergence Divergence (MACD) line has slipped below the Signal line near the zero mark, and the histogram turned negative, suggesting waning upside momentum.
The Relative Strength Index (RSI) prints at 59 (neutral), reflecting balanced conditions after the earlier overbought stretch. The 100-hour SMA at $4,956.71 serves as immediate dynamic support. Despite its decline, the SMA continues to support the intraday structure as long as the XAU/USD pair trades above it. A bullish crossover in the MACD and a sustained move back above zero would improve momentum, and an RSI push through 60 would reinforce follow-through on the upside. Conversely, a close below the SMA would hand the initiative back to sellers and expose the risk of a deeper pullback.
(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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