Gold rallies amid flight to safety, Fed rate cut bets and USD downtick; $4,900 back in sight
- Gold attracts some dip buyers on Friday following an Asian session decline to a four-day low.
- A turnaround in the risk sentiment and Fed rate cut bets act as a tailwind for the precious metal.
- The USD preserves its recent strong recovery gains and limits the upside for the XAU/USD pair.
Gold (XAU/USD) builds on its goodish intraday bounce from the vicinity of mid-$4,600s, or a four-day low touched during the Asian session on Friday, and climbs to a fresh daily high in the last hour. A turnaround in the risk sentiment drives flow toward traditional safe-haven assets and acts as a tailwind for the commodity. Moreover, bets on more interest rate cuts by the US Federal Reserve (Fed) in 2026, bolstered by signs of weakness in the US job market, turn out to be another factor offering support to the non-yielding yellow metal.
Meanwhile, the White House said that diplomacy is US President Donald Trump's first choice for dealing with Iran, but warned that he has military options at his disposal. This keeps geopolitical risks in play and also underpins the safe-haven Gold. Adding to this, the emergence of some US Dollar (USD) selling provides an additional lift to the precious metal. However, expectations that the incoming Fed Chair, Kevin Warsh, will be less dovish might cap the non-yielding yellow metal, warranting some caution before positioning for further gains.
Daily Digest Market Movers: Gold draws support from safe-haven flows, Fed rate cut bets, modest USD weakness
- Asian stocks extended losses into a second day as a selloff on Wall Street intensified amid a global rout in tech equities. Adding to this, prospects for lower interest rates in the US assist the non-yielding Gold to reverse an Asian session slide to the $4,655 area on Friday.
- According to the CME Group's FedWatch Tool, traders are currently pricing in the possibility that the US Federal Reserve will deliver at least two 25-basis-point rate cuts in 2026. The bets were reaffirmed by this week's US data, which pointed to weakness in the labor market.
- The Automatic Data Processing (ADP) Research Institute reported on Wednesday that private-sector employers added 22K new jobs in January. This marked a notable decline from the previous month's downwardly revised reading of 37K and missed estimates of a 48K rise.
- Adding to this, the Job Openings and Labor Turnover Survey (JOLTS) released on Thursday revealed that the number of job openings on the last business day of December stood at 6.542 million, compared to the previous month's downwardly revised print of 6.928 million.
- Furthermore, the US Department of Labor reported that the number of citizens submitting new applications for unemployment insurance rose to 231K for the week ending January 31 from the previous week’s 209K. The reading was also higher than estimates for a rise to 212K.
- Meanwhile, US President Donald Trump said on Thursday that he would have passed on Kevin Warsh as his nominee for the Fed Chair if he had expressed a desire to hike interest rates. Trump added that there was not much doubt that the US central bank would lower rates.
- The White House press secretary Karoline Leavitt told reporters that diplomacy is Trump's first choice for dealing with Iran, and he will wait to see whether a deal can be struck at high-stakes talks on Friday amid differences over the agenda, keeping geopolitical risks in play.
- Later during the North American session, traders will take cues from the preliminary Michigan Consumer Sentiment Index and Inflation Expectations. This, along with comments from influential FOMC members, would drive USD demand and the XAU/USD pair.
Gold mixed technical setup warrants caution before placing directional bets
The overnight failure to build on momentum beyond the 50-period Simple Moving Average (SMA) on the 4-hour chart favors bearish traders. The subsequent fall, however, finds decent support near the 200-period SMA, warranting some caution. Meanwhile, the 50-period SMA remains above the 200-period SMA, which continues to rise, sketching a mixed backdrop and keeping a consolidative bias within the broader uptrend.
The Moving Average Convergence Divergence (MACD) line holds below the Signal line near the zero level. Its negative but contracting histogram suggests fading bearish momentum, while the Relative Strength Index (RSI) prints 45 (neutral). Near-term traction would improve on a close back above the 50-period SMA at 5,026.76, with that level acting as initial resistance, whereas failure to stabilize risks a drift toward the 200-period SMA at 4,691.87, which serves as dynamic support.
A MACD move back above the Signal line and into positive territory, alongside an RSI break through 50, would bolster the recovery; otherwise, momentum remains capped, and price could continue consolidating between these averages.
(The technical analysis of this story was written with the help of an AI tool.)
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
