Gold Weekly Forecast: Bulls ignore easing EU-US tensions
- Gold advanced toward $5,000 and set a new record-high.
- The Federal Reserve will conduct the first policy meeting of the year.
- XAU/USD remains technically overbought following the last leg higher.
Gold (XAU/USD) started the week on a strong footing and gathered bullish momentum, reaching a new record-high of $4,967 in the Asian session on Friday. XAU/USD’s volatility is likely to remain high in the short term, with investors keeping a close eye on geopolitics and the Federal Reserve’s (Fed) monetary policy decisions.
Gold ignores easing EU-US tensions, advances toward $5,000
United States (US) President Donald Trump said over the weekend that he will impose a 10% tariff from February 1st, and lift it to 25% by June, on all goods from Denmark, Sweden, France, Germany, the Netherlands, Finland, Britain and Norway, which oppose his plan to acquire Greenland. Citing EU diplomats, Reuters reported that EU ambassadors reached a broad agreement to retaliate with a tariff package on 93 billion Euros of US imports. Growing concerns over a revival of a trade war between the EU and the US caused investors to adopt a cautious stance, allowing Gold to benefit from safe-haven flows early Monday.
Following a long weekend, financial markets opened on Tuesday, and Wall Street’s main indexes suffered heavy losses as investors reacted to escalating EU-US tensions. In turn, Gold extended its rally and gained nearly 2% on Tuesday.
After pushing higher in the first half of the day on Wednesday, Gold erased a portion of its daily gains in the American session as risk flows returned to markets. US President Trump backed away from his tariff threat, explaining in a social media post that he agreed with European leaders on "the framework of a future deal with respect to Greenland" and added that Washington will not be imposing tariffs on eight European nations.
Nevertheless, the selling pressure surrounding the US Dollar (USD) allowed XAU/USD to extend its rally in the second half of the week, despite the improving risk mood. Investors refrained from betting on a persistent USD recovery ahead of the upcoming Fed meeting and the uncertainty surrounding the nomination of the next Fed chair.
Early Friday, Gold advanced to a new record-high of $4,967 as markets reacted to a potential military conflict between the US and Iran. US President Trump said late Thursday that the US has an "armada" heading toward Iran, but added that hopefully he will not have to use it. Reuters reported that USS Abraham Lincoln and several guided-missile destroyers were expected to arrive in the Middle East in the coming days. Profit-taking and broad USD resilience capped Gold's upside and the precious metal erased some of its daily gains before settling above $4,900.
Gold traders to focus on Fed, geopolitics
The economic calendar will offer some mid-tier data releases in the first half of the week, including the US November Durable Goods Orders and January Consumer Confidence Index. However, investors are likely to ignore these figures and stay on the sidelines until the Fed announces its monetary policy decision in the American session on Wednesday.
The US central bank is widely anticipated to leave the policy rate unchanged at the range of 3.5%-3.75%. Hence, investors will scrutinize comments from Fed Chair Jerome Powell in the post-meeting press conference.
According to the CME FedWatch Tool, markets are currently pricing in about a 15% probability of a 25-basis-points (bps) rate cut at the next meeting in March. In case Powell adopts an optimistic tone about the inflation outlook and notes that they will need to support the labor market, investors could see this as a dovish sign and trigger another leg lower in the USD, helping XAU/USD push higher. Conversely, Gold could edge down if Powell notes that the central bank is not as concerned about the labor market as it was at the end of 2025, and that there are still upside risks to inflation. Investors could remain convinced of another policy hold in March, which would open the door for a steady recovery in the USD.
In the meantime, a further escalation of tensions in the Middle East, with the US military taking action against Iran, could allow Gold to continue to benefit from safe-haven flows.
Investors will also pay close attention to headlines over the nomination of the next Fed chair. US Treasury Secretary Scott Bessent said recently that Trump could reach a decision by the end of the month. The US president also told CNBC that he would prefer to keep White House economic adviser Kevin Hassett in his current position. BlackRock's chief bond investment manager, Rick Rieder, Fed Governor Christopher Waller and former Fed Governor Kevin Warsh are reportedly among the potential candidates. Powell’s term as head of the American central bank ends in May, but his term on the Fed runs through 2028. He is likely to be asked whether he intends to finish out his term. It’s difficult to foresee a potential market reaction on this, but if Powell suggests his retirement will be sooner rather than later, and Trump names either Waller or Warsh as the next Fed chair, markets could lean toward a more dovish policy outlook, hurting the USD.
On the other hand, Rieder is widely seen as someone who would be less influenced by politics. Although that doesn’t mean he wouldn’t embrace a dovish stance, he is a market person after all, and his pick could at least ease market concerns over the Fed losing its independence. In this scenario, the USD could stage a rebound in the near term.
Gold technical analysis
The Relative Strength Index (RSI) indicator on the daily chart climbed to 80 and Gold broke above the upper limit of the two-month-old ascending regression channel, pointing to extremely overbought conditions.
Hence, there could be a technical correction before the uptrend continues. On the downside, $4,880 (upper limit of the ascending channel) aligns as the first support level before $4,800 (round level) and $4,720 (mid-point of the ascending channel).
On the upside, $4,967 (record-high) could be seen as an interim resistance level before $5,000 (round level). If Gold breaks above this latter hurdle, investors could see round levels, such as $5,100, $5,200 and $5,300 as profit-taking targets.
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.
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Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
