Gold (XAU/USD) struggles for direction on Tuesday, with overall trading activity subdued in the absence of fresh market-moving catalysts. At the time of writing, XAU/USD trades around $5,043, holding firm after briefly slipping below the $5,000 psychological level during the early Asian session.
A risk-on mood, with global equities extending their rally, is also weighing on the Bullion in the near term. At the same time, a broadly weaker US Dollar (USD) and softer US Treasury yields are helping to cushion the downside, keeping losses limited.
Bulls are showing little appetite to add fresh long positions, as elevated volatility across the precious metals space continues to discourage aggressive positioning. The caution follows a sharp correction of around 21% from the late-January record highs near $5,600, with Gold still trading almost 10% below its peak.
Looking ahead, upcoming US economic releases this week could provide fresh direction for Bullion, with Retail Sales due later on Tuesday, followed by Nonfarm Payrolls (NFP) on Wednesday and the Consumer Price Index (CPI) on Friday.
Market movers: Debasement trade, geopolitics and Fed easing bets keep Gold supported
- The broader uptrend in Gold remains intact, as supportive macro and structural factors continue to underpin demand. The debasement theme remains a key pillar behind Gold’s rally, with central banks increasingly turning to the metal as a hedge as confidence in the US economy fades amid rising government debt and concerns over President Donald Trump’s trade rhetoric, along with interference with the Federal Reserve’s (Fed) independence.
- China has urged domestic banks to curb their exposure to US Treasuries on market-risk concerns, Bloomberg News reported on Monday. In response, US Treasury yields remain under pressure across the curve, with the benchmark 10-year yield extending its decline for a second straight day and hovering near 4.18%.
- Meanwhile, the US Dollar Index (DXY), which tracks the Greenback against a basket of major currencies, is trading broadly flat around 96.90, after slipping to a more than one-week low on Monday.
- Dovish Fed expectations remain supportive for Gold, as lower borrowing costs reduce the opportunity cost of holding the non-yielding metal. Markets are currently pricing in nearly 50 basis points of rate cuts this year, with the upcoming NFP and CPI releases likely to be crucial in determining the timing and path for the Fed to resume its easing cycle.
- White House Senior Adviser Kevin Hassett said on Monday that “we should expect slightly lower jobs numbers,” adding that “lower jobs numbers shouldn’t trigger panic.” Economists expect the US economy to add 70K jobs in January, following a 50K increase in December.
- Tensions between the US and Iran remain elevated as both sides work to set up the next round of talks. The US Maritime Administration warned US ships to stay “as far as possible” when navigating the Strait of Hormuz after a vessel was harassed last week, Bloomberg reported.
Technical analysis: XAU/USD keeps a modest upside bias above $5,000
From a technical perspective, short-term indicators remain consistent with the current range-bound price action. On the 4-hour chart, the 50-period Simple Moving Average (SMA) is in the early stages of crossing below the 100-period SMA, with the shorter average starting to roll over while the longer one continues to edge higher, signaling mixed alignment.
At the same time, price is still holding above both moving averages, which keeps a modest upside bias in place. Momentum indicators also point to consolidation rather than a breakout.
The Relative Strength Index (RSI) is holding above the mid-line near 56, suggesting mild positive momentum, but without strong bullish conviction. Meanwhile, the Average Directional Index (ADX) remains depressed near 13.5, confirming the lack of a clear trend.
On the upside, a clear and sustained break above the $5,050-$5,100 resistance zone would be needed to revive upside momentum and open the door for a resumption of the broader uptrend.
On the downside, a decisive move back below the $5,000 psychological level would weaken the near-term structure and shift the short-term bias back to the downside.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Source: https://www.fxstreet.com/news/gold-holds-firm-but-lacks-follow-through-ahead-of-key-us-economic-releases-202602101209
