- Gold gains positive momentum, rising to a new multi-month high above $2,780.
- The Fed will publish monetary policy choices after its first meeting of 2025 next week.
- The near-term technical picture indicates that Gold is about to become overbought.
Following a cautious start to the week, Gold (XAU/USD) reversed course and gained about 3% weekly, reaching its highest level since October 31 in the $2,780 range on Friday. As the market focuses on next week’s big central bank events, Gold’s technical outlook remains optimistic, albeit with symptoms of overbought circumstances.
Gold gains bullish momentum, and approaches an all-time high
Markets began the week calmly, with stock and bond markets in the United States closed for the Martin Luther King Jr. Day holiday on Monday. However, reports about US President Donald Trump’s trade intentions on the day of his inauguration made it difficult for the US Dollar (USD) to find demand, causing Gold to close the day slightly higher. The Wall Street Journal reported on Monday that President Trump will not announce day-one tariffs, and an official within the Trump administration confirmed the report, explaining that agencies will be tasked with investigating and correcting persistent trade deficits, as well as addressing unfair trade and currency policies by other countries.
In the early trading hours of Tuesday’s Asian session, Trump stated on social media that if they do a TikTok agreement and China does not allow it, he may impose taxes. Additionally, Trump stated that they are considering slapping a 25% tariff on goods from Mexico and Canada. Safe-haven flows dominated financial market activity, as the 10-year US Treasury bond yield fell below 4.6%, allowing gold to gain momentum.
After gaining more than 1% on Tuesday, gold rose further on Wednesday in the lack of high-tier macroeconomic data releases, reaching its highest level since late October, above $2,760.
On Thursday, the US Department of Labor reported that the number of first-time applications for unemployment benefits increased to 223,000 in the week ending January 18, up from 217,000 the previous week. This information failed to elicit a noteworthy market reaction. During the Asian session on Friday, Trump stated in an interview that he would prefer not to use tariffs on China, but that tariffs are a “tremendous power.” Following this comment, the USD experienced renewed selling pressure, and XAU/USD extended its weekly rise over $2,780.
The statistics from the US indicated on Friday that business activity in the US private sector continued to increase in early January, albeit at a slower rate than in December, with the flash S&P Global Composite PMI falling to 52.4 from 55.4. This data failed to inspire a USD recovery, allowing gold to remain near the top of its weekly trading range.
Gold investors wait for Fed policy announcements
The Federal Reserve (Fed) will hold its first monetary policy meeting for 2025 next week. According to the CME Group FedWatch Tool, markets believe the Fed is unlikely to decrease interest rates by 25 basis points (bps). Consequently, investors will analyze the policy statement and Fed Chairman Jerome Powell’s statements at the press conference.
In December, the revised Summary of Economic Projections (SEP) revealed that the US central bank is expected to cut interest rates twice this year. During the press conference, Powell explained that the slower rate cuts reflected the expectation of increased inflation. He also emphasized that better economic growth and labor market resilience were contributing to a cautious outlook on policy easing.
If Powell adopts a more upbeat tone on the inflation picture, citing Trump’s less-than-aggressive approach to trade policy, the immediate reaction may weigh on the USD and pave the way for another move higher in XAU/USD. Furthermore, if Powell suggests that immigration policies will harm the job market, the USD may suffer even more.
On the other side, if Powell reiterates his cautious approach to rate decreases while attempting to examine the possible impact of shifting policies on the economy, the USD may gain strength and make it difficult for Gold to maintain its position.
On Thursday, the US Bureau of Economic Analysis (BEA) will release its first estimate of fourth-quarter GDP growth. A substantial surprise in either way might affect the USD’s valuation and drive XAU/USD activity in the short term. A stronger-than-expected GDP growth might boost the USD while weighing on XAU/USD, and vice versa.
Investors will also continue to pay close attention to President Trump’s comments on trade policies, geopolitics, and potential Fed policy choices. Trump has made it plain that he wants Russia and Ukraine to find an agreement to end the conflict. Any success on this front may limit Gold’s upside.
Gold technical analysis
The near-term technical prognosis indicates that Gold is about to become technically overbought, implying that there may be a negative correction before continuing the rally. The Relative Strength Index (RSI) indicator on the daily chart is slightly above 70, and gold is trading around the top of a five-week-old ascending regression channel.
What is the correlation between gold and other assets?
Gold is inversely related to the US dollar and US treasuries, which are both key reserves and safe-haven assets. When the dollar falls, gold tends to rise, allowing investors and central banks to diversify their holdings during tumultuous times. Gold has an unfavorable correlation with risk assets. A stock market gain tends to lower gold prices, whilst sell-offs in riskier markets tend to favor the precious metal. With advances in prop firm technology, traders may now use sophisticated tools to assess market patterns, manage risk, and make informed trading decisions in volatile markets.