gold (XAU/USD) fell more than 4%, from all-time highs of $4,555, due to its weakest performance in months amid weak trading volumes on Monday. The pair is now trying to rise from the $4,300 area, supported by the decline in market sentiment on Tuesday, amid escalating geopolitical tensions.
Moscow announced on Monday that Russia will review its position on peace talks with Ukraine, after claiming responsibility for an attack on President Putin’s residence. The alleged attack, which Kiev denied, dampened faint hopes raised by the meeting between US President Trump and his Ukrainian counterpart, Volodymyr Zelensky, over the weekend.
In the Southeast Sea, China extends its military exercises around Taiwan for a second day, while US President Trump warned of a new round of attacks on Iran if the Islamic Republic resumes its nuclear weapons program.
Later today, the US Federal Reserve will release the minutes of its December meeting and may have a related impact on the US dollar and precious metals.
Technical Analysis: The main resistance is located at the $4440 area
On the 4-hour chart, the XAU/USD pair is trading at $4,372.46, after bouncing from the $4,300 area on Monday. The Moving Average Convergence-Divergence (MACD) histogram remains below zero but is contracting from deep negative readings, indicating fading downward pressure. The Relative Strength Index (RSI) stands at 38.93, below the mid-50 line but recovering from oversold, indicating stabilization in momentum.
The pair has broken the uptrend line from the mid-December lows, which now stands at $4,450, which, combined with the lows of December 22 and 24, at $4,430 and $4,448, will likely challenge the bulls and close the way to the record high at $4,555.
Downside attempts have so far been contained above the 61.8% Fib retracement level of the late December high of $4,321 and Monday’s low of 4,303%. In case of a further decline, the next targets are the 78.6% Fibonacci retracement levels of the same cycle, the lows of December 12 and 16, at around $4,265, before the lows of December 9 and 10, at $4,110.
(Technical analysis of this story was written with the help of an artificial intelligence tool)
(This story was corrected on December 30 at 11:05 GMT to update points at the beginning of the article.)
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.
