Gold adds to strong intraday gains; eyes $4,950 as Fed rate cut bets undermine USD
- Gold attracts strong buyers on Tuesday as the USD pauses the recent recovery from a four-year low.
- The market reaction to Kevin Warsh’s nomination as the next Fed chair fades amid rate cut bets.
- Easing geopolitical and trade tensions might keep a lid on any further gains for the XAU/USD pair.
Gold (XAU/USD) rallies back closer to the $4,950 level during the first half of the European session on Tuesday amid some follow-through short-covering after two days of heavy liquidation. As investors digest Kevin Warsh's nomination as the next Federal Reserve (Fed) chair, bets that the US central bank will lower borrowing costs further in 2025 keep a lid on the recent US Dollar (USD) recovery from a four-year low. This, in turn, is seen as a key factor driving flows towards the non-yielding yellow metal.
Meanwhile, signs of de-escalation of US-Iran tensions over the latter's nuclear program, along with the US-India trade deal, remain supportive of a positive risk tone, which could cap the safe-haven Gold. Apart from this, the CME Group's decision to raise margin requirements on precious metals futures might turn out to be another bearish development for the precious metal. This warrants caution before confirming that the recent sharp corrective slide from the $5,600 mark, or the all-time peak set last week, has run its course.
Daily Digest Market Movers: Gold scales higher as Fed rate cut bets cap the recent USD recovery
- US President Donald Trump on Friday nominated Kevin Warsh to succeed Jerome Powell as the next Federal Reserve Chair in May, pending Senate approval. Warsh’s background as a hawk suggests that he would remain vigilant if inflation expectations begin to rise.
- Adding to this, the CME Group said over the weekend that it would increase margins on precious metals futures starting from the close of markets on Monday. This prompted liquidation for the second straight day and dragged the Gold to a four-week low on Monday.
- On the economic data front, the Institute for Supply Management reported on Monday that the US factory activity grew for the first time in a year. In fact, the Manufacturing PMI rose to 52.6 in January, marking a significant recovery from 47.9 in the previous month.
- Meanwhile, Trump announced on Monday that the US and India have reached a trade deal and will immediately move to lower tariffs on each other’s goods. Moreover, Iran and the US are expected to resume nuclear talks on Friday, further boosting investors' confidence.
- The US Dollar ticks lower on Tuesday and moves away from an over one-week high, touched the previous day, lending some support to the Gold during the Asian session. The aforementioned negative factors, however, might keep a lid on further gains for the bullion.
- The release of the Job Openings and Labor Turnover Survey (JOLTS) for December 2025 and the Nonfarm Payrolls (NFP) report will be delayed due to a partial US government shutdown. Hence, the USD price dynamics would continue to influence the XAU/USD pair.
Gold might struggle to move back above $5,000 and $23.6% Fibo. level
The commodity showed resilience below the 50-day Simple Moving Average (SMA) and bounced off the 50% retracement level of the July 2025-January 2026 rally on Monday. The upward slope of the SMA suggests dips could be supported. Adding to this, the XAU/USD pair currently holds above the 38.2% Fibonacci retracement level, pegged around the $4,645-4,650 area, and should offer nearby support. Moreover, the Relative Strength Index (RSI) sits at 51.91 and edges higher, hinting at stabilizing momentum.
However, the Moving Average Convergence Divergence (MACD) line stands below the Signal line and below zero, reinforcing a bearish tone. The negative histogram widens, pointing to intensifying downward momentum. Meanwhile, any further move up could refocus the 23.6% retracement at $4,995.94, while failure to hold the first support would leave the recovery vulnerable to further consolidation.
(The technical analysis of this story was written with the help of an AI tool.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.