Gold price (XAU/USD) tumbles to a three-week low below $4,550 during the early European trading hours on Monday, pressured by some profit-taking. The precious metal extends the decline after reaching historic highs last week amid signs of political stability in the United States (US) as Kevin Warsh was selected to be the next Fed chair, easing concerns over the US central bank’s independence.
On the other hand, ongoing geopolitical tensions, including US-Iran tensions, could underpin traditional safe-haven assets such as Gold. Traders will closely monitor the developments surrounding US-Iran negotiations, along with further clarity on Warsh’s policy direction. Additionally, rising demand from major central banks might contribute to the precious metal’s upside.
The US ISM Manufacturing Purchasing Managers Index (PMI) data will be released later on Monday. The figure is expected to improve to 48.3 in January from 47.9 in December. If the report shows surprise to the downside, this could drag the US Dollar (USD) lower and lift the USD-denominated commodity price, as a weaker USD makes greenback-priced gold more attractive for foreign buyers.
Daily Digest Market Movers: Gold remains under selling pressure after historic plunge
- Trump said over the weekend that the US will “hopefully” make a deal with Iran. Meanwhile, Iranian Supreme Leader Ayatollah Ali Khamenei warned that any attack on his country would spark a regional conflict, as the US continues to build up its forces nearby.
- “Investors and global central banks have… favored gold as their reserve currency of choice, which they believe insulates them from US policy dependence,” said Emma Wall, chief investment strategist at Hargreaves Lansdown. “Certain nations will have observed the threat of Russia having its US dollar assets seized by global players supportive of Ukraine, and subsequently considered the metal a more attractive neutral reserve,” she added.
- US President Donald Trump nominated Kevin Warsh to succeed Jerome Powell as the next Fed Chair. He is scheduled to take office in May 2026.
- The US Producer Price Index (PPI) climbed 3.0% year-over-year (YoY) in December, beating estimates of 2.7%, according to the Bureau of Labor Statistics on Friday. The PPI rose 0.5% month-over-month (MoM) in December, above the market consensus and the previous reading of 0.2%.
- Hotter-than-expected US producer price inflation could further strengthen the case for the Fed to hold rates steady while policymakers monitor how inflation trends.
- Markets see nearly an 87% chance of interest rates staying at the current 3.50%–3.75% range, with the first 25-basis-point (bps) reduction likely in June.
Gold keeps a bullish vibe in the longer term, but a neutral RSI warrants caution for bulls
Gold trades in negative territory on the day. However, in the longer term, the path of least resistance is to the upside, as the yellow metal is well-supported above the key 100-day Exponential Moving Average (EMA) on the daily chart. The Bollinger Bands widen, suggesting a strong trend continuation.
Despite the bullish trend, the 14-day Relative Strength Index (RSI) hovers around the midline, indicating that further consolidation or a temporary sell-off cannot be ruled out.
Green candlesticks and sustained trading above the February 2 high of $4,885 could make another run toward the $5,000 psychological level. The next upside barrier to watch is the January 27 high of $5,182.
On the flip side, the first downside target for Gold is seen at the January 19 low of $4,620. Any follow-through selling below the mentioned level could expose the January 12 low of $4,513. The key contention level emerges at the 100-day EMA of $4,275.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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