Forex Today: Gold climbs above $4,700 as geopolitical tensions remain high
Here is what you need to know on Tuesday, January 20:
Safe-haven flows continue to dominate the action in financial markets on Tuesday as geopolitical tensions remain high. ZEW sentiment data from Germany will be published during the European trading hours, while investors will pay close attention to fresh developments surrounding the EU-US tensions over Greenland.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.88% | -0.86% | 0.40% | -0.46% | -1.05% | -1.66% | -0.81% | |
| EUR | 0.88% | 0.02% | 1.26% | 0.42% | -0.17% | -0.78% | 0.07% | |
| GBP | 0.86% | -0.02% | 0.98% | 0.39% | -0.20% | -0.81% | 0.04% | |
| JPY | -0.40% | -1.26% | -0.98% | -0.81% | -1.40% | -1.99% | -1.16% | |
| CAD | 0.46% | -0.42% | -0.39% | 0.81% | -0.57% | -1.19% | -0.35% | |
| AUD | 1.05% | 0.17% | 0.20% | 1.40% | 0.57% | -0.61% | 0.24% | |
| NZD | 1.66% | 0.78% | 0.81% | 1.99% | 1.19% | 0.61% | 0.86% | |
| CHF | 0.81% | -0.07% | -0.04% | 1.16% | 0.35% | -0.24% | -0.86% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
US President Donald Trump argued early Tuesday that Denmark is unable to adequetly protect Greenland and said that they will be discussing this issue in Davos. Trump also noted that he will impose a 200% tariff on French wines and champagnes if France declines to join the Gaza Board of Peace.
Gold continues to benefit from the risk-averse market atmosphere and trades at a new record high above $4,700, rising about 1% on the day. Silver remains relatively quiet and fluctuates above $94 after gaining more than 4.5% on Monday.
Financial markets in the US will return to action following a long weekend but the US economic calendar will not feature any high-impact data releases. The Automatic Data Processing (ADP) will release the Employment Change 4-week Average data later in the session. US President Donald Trump will deliver a special address at the World Economic Forum in Davos on Wednesday. After losing more than 0.3% on Monday, the US Dollar (USD) Index continues to edge lower and was last seen losing about 0.2% on the day below 99.00. In the meantime, US stock index futures are down between 1.2% and 1.6% in the European morning.
The UK's Office for National Statistics reported on Tuesday that the ILO Unemployment Rate remained unchanged at 5.1% in the three months to November. In this period, the Employment Change was +82,000, compared to the 17,000 decrease recorded in October. GBP/USD showed no immediate reaction to the employment report and was last seen clinging to modest daily gains near 1.3450. The ONS will publish December inflation data on Wednesday.
The data published by Statistics Canada showed on Monday that annual inflation in Canada, as measured by the change in the Consumer Price Index (CPI), climbed to 2.4% in December from 2.2% in November. This print came in above the market expectation of 2.2%. USD/CAD continues to push lower and trades near 1.3850 after closing in negative territory on Tuesday.
EUR/USD preserves its bullish momentum following Monday's rally and climbs toward 1.1700 early Tuesday.
USD/JPY holds near 158.50 after posting small gains on Monday. The Bank of Japan will hold the first monetary policy meeting of the year later in the week.
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.
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.
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