Gold (XAU/USD) is holding on to strong intraday gains above the $4,400 level during the Asian session on Monday and appears poised to rise further amid the global flight to safety. Geopolitical tensions escalated after the United States launched ground strikes on Venezuela, leading to the arrest of its president, Nicolas Maduro, and his wife. Moreover, US President Donald Trump’s confrontational rhetoric towards Colombia and Mexico has raised concerns about regional instability in Latin America, boosting demand for the traditional safe haven commodity.
Apart from this, the prospect of further interest rate cuts by the US Federal Reserve later this year turns out to be another factor driving flows into non-yielding gold. At the same time, rising geopolitical tensions are benefiting the US dollar’s status as a global reserve currency. However, the rise in the US dollar does not have much impact on the bullish sentiment surrounding the commodity during the day. This in turn supports the case for further upward movement in bullion as traders now look ahead to important US macroeconomic indicators this week.
Daily Summary Market Drivers: Gold benefits from global flight to safety and bets the Fed will lower interest rates
- The US Army’s Delta Force – an elite special forces unit – attacked Venezuela and captured its president, Nicolas Maduro, along with his wife, on Saturday. Moreover, US President Donald Trump has explicitly indicated that Colombia and Mexico may also face US actions as part of an expanded campaign against criminal networks and regional instability.
- This comes in addition to the lack of progress in the peace agreement between Russia and Ukraine, unrest in Iran, and issues surrounding Gaza, which keeps geopolitical risks alive and benefits safe-haven gold at the start of a new week. Apart from this, the US Federal Reserve’s dovish outlook is another factor supporting the non-yielding yellow metal.
- Investors are factoring in the possibility that the US central bank will cut borrowing costs in March and could deliver another interest rate cut later this year. Moreover, expectations that the new Trump-aligned Fed head will push for aggressive action overshadow the central bank’s hawkish guidance of just one rate cut by the end of this year.
- The release of important US data this week, including the closely watched US non-farm payrolls report on Friday, and upcoming inflation data, will determine the course of the Fed’s policy. This, in turn, will play a major role in influencing the near-term US dollar price dynamics and determining the next phase of the commodity’s directional movement.
- The US dollar is riding on a recent good recovery move from its lowest level since early October, which was touched on December 24, and has risen to its highest level in almost four weeks. However, this failed to impede the XAU/USD pair’s intraday move higher beyond the $4,400 mark, suggesting that the path of least resistance for bullion remains to the upside.
Gold bulls have the upper hand as the 100 hourly simple moving average crosses the $4,400 level
On the 1-hour chart, the 100-period simple moving average is sloping lower, keeping the broader tone cautious. The XAU/USD pair stands above this average, indicating an intraday recovery, while the 100 SMA at $4,377.80 offers initial support. The Moving Average Convergence Divergence (MACD) histogram has turned positive and is widening, indicating the MACD line is above the signal line and improving bullish momentum. The Relative Strength Index (RSI) is at 63.42, which is flat but not overbought.
Staying above the bearish 100-SMA would keep the recovery path open, while closing below it would expose further decline. The positive tone of the MACD indicator indicates that buyers are maintaining the initiative and that continued expansion should lead to additional gains. The RSI remains north of 60, reinforcing bullish pressure. A pullback towards 50 would indicate fading momentum.
(Technical analysis of this story was written with the help of an artificial intelligence tool)
Federal Reserve Bank Questions and Answers
Monetary policy in the United States is shaped by the Federal Reserve Bank (Fed). The Federal Reserve has two missions: achieving price stability and promoting full employment. The primary tool for achieving these goals is adjusting interest rates. When prices rise too quickly and inflation is above the Fed’s 2% target, it raises interest rates, which increases borrowing costs throughout the economy. This causes the US dollar (USD) to strengthen because it makes the United States a more attractive place for international investors to park their money. When inflation falls below 2% or when the unemployment rate is very high, the Fed may lower interest rates to encourage borrowing, which affects the dollar.
The Federal Reserve (Fed) holds eight policy meetings annually, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC meeting is attended by twelve Fed officials – the seven members of the Board of Governors, the New York Fed president, and four of the remaining eleven regional Fed presidents, who serve one-year terms on a rotating basis.
In extreme cases, the Fed may resort to a policy called quantitative easing (QE). Quantitative easing is the process by which the Federal Reserve dramatically increases the flow of credit into a stuck financial system. It is a non-standard policy measure used during crises or when inflation is very low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. Quantitative easing usually weakens the US dollar.
Quantitative tightening (QT) is the reverse process of quantitative easing, where the Fed stops purchasing bonds from financial institutions and does not reinvest capital from bonds it holds outstanding, to purchase new bonds. This is usually positive for the value of the US dollar.
