Gold nears $5,000 amid safe-haven demand and a weaker US dollar

Gold (XAU/USD) gains on Friday, setting another record high after coming under brief pressure earlier in the day. At the time of writing, XAU/USD is trading around $4,980, having rebounded from an intraday low near $4,899 and remains on track for a third straight weekly gain.

Meanwhile, a mixed batch of US economic data failed to provide significant support for the US dollar (USD), allowing gold to extend its rally.

Gold has rallied more than 8% this week, supported by sturdy safe-haven demand after US President Donald Trump’s renewed trade rhetoric over the Greenland dispute sent global markets reeling, reviving “Sell America” sentiment.

But some of those tensions eased on Wednesday after Trump backed away from earlier threats to impose tariffs on several European countries following the announcement of a future framework agreement on Greenland.

The move did little to chilly gold’s bullish momentum as investors remain unconvinced that tensions have been fully resolved and the framework agreement lacks specific details. At the same time, broader geopolitical and economic uncertainty continues to drive demand for unthreatening haven assets, keeping the price of the precious metal sturdy.

Market drivers: US data, Fed leadership and policy credibility concerns

Preliminary S&P Global Purchasing Managers Index (PMI) data showed the manufacturing PMI rose to 51.9 in January from 51.8, below expectations of 52.1, while the services PMI was 52.5, unchanged from December but below the forecast of 52.8.
Data from the University of Michigan survey for January showed the Consumer Expectations Index rose to 57, above forecasts, and the previous reading was 55. The Consumer Confidence Index improved to 56.4, above expectations and up from 54. Consumers’ one-year inflation expectations fell to 4.0% from 4.2%, while five-year inflation expectations fell to 3.3% from 3.4%.
Economic data released Thursday showed the U.S. economy grew at an annual rate of 4.4% in the third quarter, exceeding market expectations of 4.3% and accelerating from 3.8% in the second quarter. Basic personal consumption expenditure (PCE) inflation held steady at 2.9% q-o-q, while the number of unemployed people rose to 200,000 from 199,000 in the previous week.
The U.S. Dollar Index (DXY), which tracks the dollar against a basket of six major currencies, is trading around 98.36, near two-week lows, and is on track for its first weekly decline in three weeks.
U.S. President Donald Trump’s destructive trade agenda and repeated utilize of tariffs as a political weapon are undermining investor confidence in U.S. assets, fueling concerns about asset depreciation and driving demand for conventional unthreatening assets.
President Donald Trump said on Thursday that he had completed interviews to be the next head of the Federal Reserve (Fed) and confirmed that he had made his choice, adding that an official announcement would likely be made before the end of January. Media reports suggest Kevin Hassett, Rick Rieder, Christopher Waller and Kevin Warsh are on the tiny list, although Trump indicated last week that he may keep National Economic Council director Kevin Hassett in his current position.
Markets remain cautious about whether President Trump’s selection as the next Fed chairman could push the central bank toward a more dovish policy path, following his repeated criticism of current Fed Chairman Jerome Powell for not cutting interest rates more aggressively.
On the monetary policy front, recent US economic data has reinforced the view that the Fed is likely to stick to a path of gradual monetary easing rather than aggressive rate cuts. Markets are almost fully pricing in no change at the upcoming January 27-28 meeting and broadly expect the central bank to remain unchanged throughout the first quarter.

Technical Analysis: Bulls Stop Below $5,000

From a technical perspective, trend conditions remain unchanged, with XAU/USD holding well above the 21- and 50-period uncomplicated moving averages (SMAs). The Average Directional Index (ADX) is hovering around 39, signaling a sturdy trend despite emerging signs of near-term exhaustion.

The risk of a pullback increases as overbought conditions persist across multiple time frames. On the 4-hour chart, the Relative Strength Index (RSI) has weakened back towards the 70 level and is showing a bearish divergence, signaling early signs of fading momentum.

On the other hand, immediate support is seen at the psychological level of $4,900. A sustained break below this zone shifts attention to the 21-period SMA near $4,828, followed by the 50-period SMA near $4,709. On the other hand, the psychological level of $5,000 remains the key resistance.

Frequently asked questions about central banks

Central banks have a key task of ensuring price stability in a country or region. Economies constantly struggle with inflation or deflation resulting from price fluctuations of certain goods and services. A constant enhance in the prices of the same goods means inflation, a constant fall in the prices of the same goods means deflation. The task of the central bank is to maintain demand at an appropriate level by changing basic interest rates. For the largest central banks, such as the US Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of England (BoE), the task is to keep inflation close to 2%.

The central bank has one critical tool at its disposal to raise or lower inflation, and that is to change its benchmark interest rate, commonly known as the interest rate. At the times indicated above, the central bank will issue a statement containing its key interest rate and provide additional justification for why it is maintaining or changing (lowering or raising) it. Local banks will adjust their savings and loan rates accordingly, which will in turn make it harder or easier for people to earn money on savings and for companies to take out loans and invest in their businesses. When a central bank increases interest rates significantly, it is called monetary tightening. Lowering the reference rate is called easing monetary policy.

The central bank is often politically independent. Members of the central bank’s policy board go through a series of panels and hearings before being appointed to a position on the policy board. Each member of this board often has some belief about how the central bank should control inflation and the resulting monetary policy. Members who want a very loose monetary policy, with low interest rates and budget-friendly credit, to significantly stimulate the economy, while being content with inflation just above 2%, are called “doves”. Members who rather want higher interest rates to reward savings and who want to keep inflation contained all the time are called “hawks” and will not stop until inflation reaches 2% or just below.

Typically, each meeting is chaired by a chairman or president who must reach a consensus between hawks and doves and has the final say when votes are split to avoid a 50-50 tie on whether current policy needs to be adjusted. The chairman gives speeches, which can often be followed live, during which the current state of monetary policy and prospects is conveyed. The central bank will try to push through its monetary policy without causing wild swings in interest rates, stocks or its currency. All central bank members will present their position to markets ahead of the policy meeting. In the days before a policy meeting, until a fresh policy is announced, members are prohibited from speaking publicly. This is called the blackout period.