Gold (XAU/USD) added another element to its relentless rally on Thursday, building on the previous day’s solid gain of 3.87% as increased volatility and continued demand for safe and sound havens continue to generate forceful inflows into Bullion. At the time of writing, XAU/USD is trading around $5,522, consolidating after setting a up-to-date record high earlier in the day near $5,598.
Heightened geopolitical tensions remain a key factor behind gold’s recent rally, with US-Iran risks back in the spotlight after Washington issued up-to-date warnings about potential military action.
At the same time, investor confidence in the US dollar (USD) continues to decline, pushing inflows to established havens. The so-called “devaluation trade” remains in play, fueled by US President Donald Trump’s aggressive trade agenda and repeated attacks on the independence of the Federal Reserve (Fed).
Meanwhile, the Fed’s latest monetary policy decision did not significantly change expectations, and markets continue to price in two rate cuts this year, which would provide another layer of support for the unprofitable metal.
Market drivers: Geopolitics, Fed signals and dollar volatility drive markets
- Geopolitical tensions have risen sharply after CNN reported that President Donald Trump is considering a major military attack on Iran, although a final decision has not yet been made. The report follows Trump’s warning in a Wednesday Truth Social post that a “massive armada” is heading toward Iran and calling on Tehran to return to the negotiating table over its nuclear program. Trump warned that “time is running out” to reach an agreement and warned that “the next attack will be much worse.”
- In its Q4 and full-year 2025 Gold Demand Trends report published on January 29, the World Gold Council (WGC) said that total gold demand in 2025 exceeded 5,000 tonnes for the first time in history, driven by exceptionally enormous investment flows. Central banks purchased 863 tonnes of gold during the year, while global holdings of gold ETFs increased by 801 tonnes – the second highest annual escalate on record. Demand for bars and coins also rose to a 12-year high.
- On the monetary policy front, the Fed kept interest rates unchanged at a range of 3.50-3.75% in a 10-2 split decision. In its statement, the central bank said economic activity continued to grow at a solid pace, while noting that job growth remained low and the unemployment rate was showing signs of stabilizing. Policymakers added that inflation remained somewhat elevated and stressed that uncertainty about the economic outlook remained high.
- Markets are also closely watching the Fed’s leadership after U.S. Treasury Secretary Scott Bessent said on Wednesday that President Trump’s choice as the next Fed chairman could be announced “in the next week or so.” Rick Rieder, Christopher Waller and Kevin Warsh are reportedly potential candidates. Investors remain cautious that Trump’s election could prompt the central bank to adopt a more dovish policy path.
- U.S. Treasury Secretary Scott Bessent also helped stabilize markets after a recent bout of ponderous selling that pushed the dollar to a four-year low. Bessent said the United States “always has a strong dollar policy.” The remarks followed Tuesday’s comments from U.S. President Donald Trump, who downplayed the recent slide.
- The U.S. Dollar Index (DXY), which compares the dollar against a basket of six major currencies, is unchanged near 96.20. In the US economic calendar, the number of up-to-date jobless claims decreased slightly to 209,000. from 210 thousand last week, but it was above expectations at 205,000. The number of up-to-date unemployed persons decreased slightly to 209,000. from 210 thousand last week, but it was above expectations at 205,000. Meanwhile, non-farm productivity held steady at 4.3%, while unit labor costs fell 1.9% in the third quarter.
Technical analysis: Rally extends, volatility increases, bulls continue to dominate
Gold’s rally is becoming increasingly congested, but bulls remain unfazed as growth momentum remains forceful. On the daily chart, Bollinger Bands are widening and price is well above the upper band near $5,384, highlighting both forceful upside momentum and tight conditions.
The Relative Strength Index (RSI) is at 90.53 and is deep in overbought territory, highlighting the strength of this move but also warning that the market is increasingly susceptible to mean reversions or consolidation if momentum begins to reverse.
Volatility is also skyrocketing. ATR (14) rose to 118.30, confirming that daily trading ranges are widening and price swings are becoming more aggressive.
Immediate support is located near $5,500, followed by the previous day’s low near $5,157. On the other hand, if the bullish momentum remains unchanged, XAU/USD may rise towards the $5,700-5,800 zone.
(The technical analysis for this story was written with the lend a hand of an AI tool.)
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 exploit 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 safe and sound 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 forceful dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.
