Gold rises above $4,600 as Fed turmoil and global tensions boost safe-haven demand

Gold (XAU/USD) is starting the week with robust upward momentum, reaching fresh record highs near $4,620 as renewed concerns about the independence of the Federal Reserve (Fed) fuel broad risk aversion. At the time of writing, XAU/USD is trading around $4,600, up almost 2.0% on the day.

Market sentiment was shaken by the unprecedented situation in the United States (USA), where prosecutors initiated an investigation into Fed Chairman Jerome Powell.

Increasing political pressure on the Fed is undermining confidence in U.S. monetary policy and weighing on the U.S. dollar (USD), while supporting gold amid growing economic uncertainty.

At the same time, ongoing geopolitical tensions continue to drive an influx of safe-haven investors into Bullion. Investors are closely monitoring nationwide protests in Iran, renewed U.S.-Greenland rhetoric and ongoing developments involving Venezuela.

Looking ahead, this week’s focus will be on US macroeconomic data, with the Consumer Price Index (CPI) due on Tuesday, followed by Retail Sales and the Producer Price Index (PPI) on Wednesday, as well as numerous Fed appearances throughout the week.

Market movers: Geopolitical risks and Fed turmoil have investors cautious

The U.S. Department of Justice (DoJ) issued grand jury subpoenas on Friday as part of a criminal investigation into Fed Chairman Jerome Powell related to his testimony in the Senate about the $2.5 billion Fed headquarters renovation project.
Chairman Jerome Powell, in a video statement released tardy Sunday, said the Justice Department’s actions were politically motivated, emphasizing that “this is not about my testimony last June or about the renovation of the Federal Reserve buildings,” adding that these explanations “are a pretext.” Powell said the issue is whether the Fed can continue to set interest rates “based on evidence and economic conditions – or whether political pressure or intimidation will instead guide monetary policy.”
White House senior adviser Kevin Hassett said in an interview on CNBC on Monday that there were “dramatic cost overruns” during the renovation of the Fed headquarters, adding that he did not believe the central bank’s stance on interest rates had anything to do with recent events.
US President Donald Trump on Sunday threatened possible military action against Iran amid rising unrest and a rising death toll. In response, Tehran warned that it would target US military bases if Washington followed through with renewed threats to strike the country in support of protesters.
US Secretary of State Marco Rubio is scheduled to meet with Danish and Greenland officials this week after President Donald Trump doubles down on plans to take over Greenland.
Last week’s data from the US labor market eased fears of a piercing deterioration in employment conditions and tempered expectations of a short-term cut in Fed interest rates. However, investors are still pricing in around two cuts later this year. The U.S. economy added 50,000 jobs in December, below expectations for growth of 60,000, but softer data was partially offset by a decline in the unemployment rate to 4.4% from 4.6%.

Technical Analysis: Bulls remain in control and gold hits record highs

From a technical perspective, the XAU/USD pair remains in a well-defined uptrend, extending gains into uncharted territory after last year’s historic rally.

The daily chart shows a clear sequence of higher highs and higher lows since prices bottomed near the $4,000 area in October, following a brief corrective pullback from the previous high.

Trend conditions remain constructive with moving averages continuing to rise. The 21-day uncomplicated moving average (SMA) provides energetic support near $4,403.

That said, near-term pullback risks are rising as the Relative Strength Index (RSI) is hovering near overbought territory and showing early signs of bearish divergence.

On the other hand, initial support is perceptible at the psychological level of $4,500. On the other hand, bulls expect a sustained break above $4,600, which could open the door towards the $4,700 region. The Average Directional Index (ADX) near 30 signals that the broader trend remains robust.

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 operate 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 secure 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 support 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 robust dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.