Gold (XAU/USD) rebounds on Tuesday, recovering from a moderate decline after posting a modern record high of $5,111 on Monday. The metal remains supported by powerful safe-haven demand as investors remain cautious amid continued geopolitical tensions and broader economic uncertainty.
At the time of writing, XAU/USD is trading around $5,080, rebounding from an intraday low near $4,990.
Trade tensions remain in the spotlight, with US President Donald Trump’s tariff agenda once again worrying markets. Trump’s aggressive trade rhetoric and repeated employ of tariffs as an economic weapon are taking a toll on the US dollar (USD).
While U.S. stock markets have remained resilient so far, growing concerns over inflated valuations are keeping investor sentiment volatile. At the same time, fears of another U.S. government shutdown are growing and lawmakers face a Jan. 30 funding deadline. Against this backdrop, Bullion continues to attract defensive flows.
However, the metal is struggling to attract powerful follow-on buying as investors remain reluctant to enter into modern directions ahead of the Federal Reserve’s (Fed) interest rate decision, which is expected to be published on Wednesday.
Looking ahead, the U.S. economy remains relatively muted on Tuesday, with the release of the ADP 4-week average of employment changes, the FHFA Home Price Index and the Conference Board Consumer Confidence Survey.
Market movers: tariffs, Fed, geopolitics in focus
- US President Donald Trump said on Monday that he plans to raise tariffs on imports from South Korea to 25% from 15%. In a social media post, Trump blamed South Korea’s legislature for not approving a trade deal reached last year, adding that higher tariffs would apply to cars, wood and pharmaceutical products.
- The move took on a modern escalation over the weekend when Trump warned he could impose massive 100% tariffs on all Canadian goods if Ottawa pursues a trade deal with China.
- The U.S. Dollar Index (DXY), which tracks the value of the dollar against a basket of six major currencies, is trading near four-month lows around 96.88.
- Fed leadership is also in the spotlight, with President Trump expected to announce his decision on the next Fed chair in the coming days. Markets remain wary that Trump’s election could push the central bank onto a more dovish policy path, following his repeated criticism of current Chairman Jerome Powell for not cutting interest rates more aggressively.
- Tensions between the US and Iran have resurfaced following reports that the aircraft carrier USS Abraham Lincoln and its accompanying warships have arrived in the Middle East, fueling concerns about a possible escalation in relations with Iran. Iranian officials warn of retaliation if the United States takes military action.
- On the monetary policy front, markets are fully pricing in the Fed’s decision to keep interest rates unchanged at 3.50-3.75% on Wednesday. Instead, attention will focus on Chairman Jerome Powell’s post-meeting press conference for modern guidance on the path of monetary policy, with investors now expecting about two rate cuts later this year.
Gold FAQs
Gold has played a key role in human history as it has been widely used as a store of value and a medium of exchange. Nowadays, beyond its luster and employ in jewelry, the precious metal is widely viewed as a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation because it is not tied to any particular issuer or government.
Central banks are the largest holders of gold. To support their currencies in turbulent times, central banks typically diversify their reserves and purchase gold to improve the perceived strength of the economy and currency. High gold reserves may provide a source of confidence in the country’s solvency. According to data from the World Gold Council, central banks added 1,136 tons of gold to their reserves in 2022, worth about $70 billion. This is the highest annual purchase since registration began. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US dollar and US treasury bonds, which are both major reserve assets and unthreatening haven assets. When the dollar depreciates, gold tends to rise, allowing investors and central banks to diversify their holdings in turbulent times. Gold is also inversely correlated with risky assets. A rally in the stock market tends to weaken the price of gold, while sell-offs in riskier markets favor the precious metal.
The price may change due to many factors. Geopolitical instability or fear of a deep recession can quickly cause gold prices to rise due to its safe-haven status. Gold, as a non-yielding asset, tends to rise at lower interest rates, while the higher cost of money tends to weigh on the yellow metal. Still, most of the movements depend on the behavior of the US dollar (USD) when the asset is priced in dollars (XAU/USD). A powerful dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.
