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Gold corrects sharply after record highs amid profit-taking, USD rebound

  • Gold price retreats sharply at the start of the week after posting a new record high on Friday
  • Profit-taking and a firmer US Dollar weigh on the precious metal
  • Rate cut expectations and geopolitical tensions continue to limit downside potential

Gold (XAU/USD) drops sharply on Monday, down 4.50% and trading near $4,330 at the time of writing, after hitting a fresh all-time high at the end of last week. The precious metal is facing strong profit-taking in a thin liquidity environment ahead of the year-end holidays, which is amplifying the corrective move following the sharp rally seen in recent months.

A moderate rebound in the US Dollar (USD) is also adding pressure on Gold, as it makes the metal more expensive for non-US buyers. This recovery in the Greenback comes as some investors adjust their positions before the end of the year, following Gold’s exceptional performance in 2025.

Despite the short-term pullback, the broader macroeconomic backdrop remains supportive for the yellow metal. Markets continue to anticipate monetary easing by the Federal Reserve (Fed) next year, with interest rate cuts expected to reduce the opportunity cost of holding non-yielding assets such as Gold.

Political developments in the United States (US), particularly concerns surrounding central bank independence, are also sustaining an environment of uncertainty that tends to favor safe-haven assets.

On the geopolitical front, persistent tensions continue to underpin structural demand for Gold as a safe haven. Recent developments related to Ukraine and China’s military activity near Taiwan remind investors that geopolitical risks remain elevated, even as near-term market dynamics currently favor a phase of consolidation.

Against this backdrop, the current correction in Gold appears more like a technical pause following a historic surge rather than a reversal of the broader trend, with macroeconomic and geopolitical factors still arguing for sustained interest in the precious metal over the medium term.

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

Ghiles Guezout

Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.

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