Gold (XAU/USD) edged up slightly on Tuesday after gaining more than 2.5% the previous day due to increased safe-haven demand following the United States (US) attacks on Venezuela. At the time of writing, XAU/USD is trading around $4,470, up about 0.50% on the day.
While safe-haven demand remains high, fresh buying has tapered off after Monday’s sharp gains as investors keep an eye on developments in US-Venezuela relations. Over the weekend, US armed forces captured Venezuelan President Nicolas Maduro and brought him to New York, where Maduro faces narco-terrorism and drug trafficking charges.
Meanwhile, relatively stable risk sentiment in global equity markets is also reducing additional safe investment flows.
That said, persistent geopolitical tensions and continued expectations of two interest rate cuts by the Federal Reserve (Fed) this year are reducing gold’s broad bullish bias, keeping prices well below record highs.
Traders are also awaiting US jobs data later this week, which could shape Fed expectations in the near term and provide the next directional cue for bullion.
Market Drivers: Markets digest Venezuela results and weak US factory data
- Fed officials took a cautious but somewhat dovish stance on Tuesday. Richmond Fed President Thomas Barkin said the Fed’s dual mandate should be kept an eye on both sides, adding that the policy rate remains within the neutral range and that upcoming decisions will need to be “finely tuned” given inflation and employment risks. Separately, Fed Governor Stephen Miron said incoming data should continue to indicate that rate cuts are appropriate, warning that keeping policy too tight “could dampen growth initially”, while adding that he remained optimistic about the economic outlook.
- Venezuelan President Nicolas Maduro appeared before a federal judge in New York on Monday with his wife and pleaded not guilty, saying, “I am innocent. I am not guilty. I am a decent man, president of my country.”
- Following the attacks, US President Donald Trump told reporters on Sunday that the United States would temporarily “run” Venezuela. Meanwhile, newly appointed President Delsy Rodríguez said late Monday that Venezuela was seeking cooperation, adding, “We invite the U.S. government to cooperate with us on an agenda of cooperation oriented toward shared development within the framework of international law.”
- The US dollar index (DXY), which tracks the greenback’s value against a basket of six major currencies, is trading around 98.37 after falling to 98.16 earlier in the Asian session.
- The ISM manufacturing PMI remained in contraction territory at 47.9 in December, missing expectations of 48.3 and slipping from 48.2 in November. The price paid index remained steady at 58.5, below the forecast of 59. The employment index rose to 44.9 from 44, while the new orders index contracted for the fourth consecutive month in December, rising to 47.7 from 47.4, after a month of growth.
- Minneapolis Fed President Neel Kashkari said Monday that he “anticipates” monetary policy is now close to neutral, adding that he expects the U.S. economy to remain resilient. Kashkari also said there was a risk of the unemployment rate rising and identified the persistence of inflation as a major concern.
Technical Analysis: Rising moving average maintains bullish trend
From a technical perspective, the daily chart reflects a broadly constructive setup. The 21-day Simple Moving Average (SMA) remains above the 50-day SMA, both indicators are at higher levels and prices remain comfortably above them.
On the downside, the rising 21-day SMA near $4,348.80 provides the first layer of dynamic support, ahead of the psychological level of $4,300. A deeper decline could lead buyers to defend the 50-day SMA around $4,200.92, which underpins the broader uptrend.
On the positive side, the $4,450-$4,470 zone limits immediate progress. A sustained break of this barrier would expose all-time highs near $4,549, with room for further upside if the bullish momentum intensifies.
Speed indicators are stabilizing. The moving average convergence divergence (MACD) remains below the signal line and below the zero mark, but the negative histogram is shrinking, which points to reducing bearish pressure. Meanwhile, the Relative Strength Index (RSI) is near 64, indicating positive momentum without overbought conditions yet.
Sona FAQ
Gold has played an important role in human history as it has been widely used as a store of value and medium of exchange. Currently, apart from its luster and use for jewellery, the precious metal is widely viewed as a safe-haven asset, meaning it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and falling currencies because it is not dependent on any specific issuer or government.
Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks diversify their reserves and purchase gold to improve the perceived strength of the economy and currency. High gold reserves can be a source of confidence for a country’s solvency. Central banks added 1,136 tonnes of gold, worth about $70 billion, to their reserves in 2022, according to World Gold Council data. This is the highest annual purchase since records began. Central banks of emerging economies like China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are both major reserve and safe-haven assets. When the dollar depreciates, gold rises, helping investors and central banks diversify their assets in turbulent times. Gold is also inversely correlated with risky assets. Stock market rallies weaken the price of gold, while selling in riskier markets benefits the precious metal.
The price may increase due to a variety of factors. Gold’s safe-haven status could cause its price to rise sharply due to geopolitical instability or fears of a deep recession. As a yield-low asset, gold tends to rise with low interest rates, while higher costs of money generally weigh on the yellow metal. Still, most of the moves depend on how the US dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong dollar keeps the price of gold in check, while a weak dollar is likely to push gold prices higher.
