Gold (XAU/USD) rose to new highs on Monday, as escalating geopolitical tensions boosted safe-haven demand. At the time of writing, the XAU/USD pair is trading at around $4,424, up about 2% on the day, after breaking above the October 20 peak near $4,381.
The precious metal is on track for its strongest annual performance since 1979, with prices up nearly 67% year-to-date. The rally was driven by the Federal Reserve’s dovish stance, broad-based US dollar weakness, continued central bank purchases and record inflows into gold-backed ETFs.
Looking ahead, markets continue to expect further monetary policy easing by the Federal Reserve through 2026, with recent data pointing to easing inflationary pressures and a weaker US labor market. A low interest rate environment typically supports non-yielding assets such as gold.
As markets drift towards the end of the year and liquidity declines with major data releases largely drying up, gold may consolidate in the near term or see moderate profit-taking after the recent rally before attempting to push back into uncharted territory.
However, some US economic data released on Tuesday may still provide short-term direction, with focus on the four-week average of ADP employment change, the delayed preliminary report of third-quarter GDP, durable goods orders, industrial production, and consumer confidence.
Market Drivers: Rising geopolitical tensions and Fed signals are making markets cautious
- On the geopolitical front, renewed tensions between Iran and Israel are reinforcing risk-off sentiment. Reports indicate that Iran may use large-scale military exercises as a potential cover for offensive operations. Israeli officials also warned that Tehran may rebuild nuclear enrichment facilities that were targeted by US strikes in June. Meanwhile, Israeli Prime Minister Benjamin Netanyahu is expected to brief US President Donald Trump on potential options for striking Iran’s missile program again.
- Tensions between the United States and Venezuela also escalated sharply. US forces intercepted and pursued another oil tanker near Venezuelan waters after seizing two tankers last week. The latest action comes after President Donald Trump ordered a blockade of sanctioned oil tankers entering and leaving Venezuela.
- US-led Ukraine peace talks showed mixed progress over the weekend amid the ongoing conflict. Envoys from the United States, Europe, Ukraine and Russia held discussions in Miami, with US special envoy Steve Witkoff describing the talks as “productive and constructive,” especially regarding the development of a 20-point peace plan and potential security guarantees for Kiev. However, there has been no significant progress, as Moscow continues to cling to its territorial claims.
- On the monetary policy front, markets are currently considering two rate cuts from the Fed in 2026. However, Fed officials remain divided on the need for additional monetary easing after the cumulative 75 basis point cuts this year. Cleveland Fed President Beth Hammack, a future FOMC voter for 2026, indicated in an interview with The Wall Street Journal that she sees no need to adjust interest rates for several months to come, arguing that inflation remains a key concern even after recent easing steps and suggesting that the central bank could keep the interest rate in its current 3.50%-3.75% range in the spring.
- A weak US dollar provides additional strength by making the metal cheaper for buyers abroad. The US Dollar Index (DXY), which tracks the value of the US currency against a basket of six major currencies, is trading around 98.46, falling after rising to a one-week high on Friday.
Technical Analysis: XAU/USD maintains a bullish bias despite the overbought RSI
The XAU/USD pair is resuming its broader uptrend, moving back into uncharted territory after going through a healthy period of correction and consolidation, defying previous concerns about an excessive rally.
On the daily chart, gold continues to trade comfortably above the 21-day simple moving average (SMA) near $4,244 and the 50-day SMA around $4,154, both of which are sloping higher and reinforcing the bullish bias. As long as prices remain above these dynamic support levels, dips are likely to attract buyers.
The Relative Strength Index (RSI) stands near 77, which is firmly in overbought territory, indicating strong upward momentum, although it also indicates room for short-term consolidation or shallow pullbacks. Meanwhile, the Average Directional Index (ADX) rose to 29.53, reinforcing the bullish backdrop.
(This story was corrected on December 22 at 14:40 GMT to say in the first paragraph that the gold price peak near $4,381 was on October 20, not the 21st)
Frequently asked questions about gold
Gold has played a major role in human history as it has been widely used as a store of value and a medium of exchange. Currently, apart from its luster and use in jewellery, the precious metal is widely viewed as a safe haven asset, meaning it is a good investment during turbulent times. Gold is also widely viewed as a hedge against inflation and currency depreciation because it is not dependent on any specific issuer or government.
Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase gold to improve the perceived strength of the economy and the currency. High gold reserves can be a source of confidence for a country’s solvency. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase since records began. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve assets and safe havens. When the value of the dollar declines, 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 rise in the stock market tends to weaken the price of gold, while a sell-off in riskier markets tends to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession could cause the price of gold to rise rapidly due to its safe-haven status. As a lower-yielding asset, gold tends to rise as interest rates fall, while a higher cost of money usually negatively impacts the yellow metal. However, most of the moves depend on how the US Dollar (USD) behaves as the asset is priced in Dollars (XAU/USD). A stronger dollar tends to keep the price of gold in check, while a weaker dollar is likely to push gold prices higher.
