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3 Jan 2025
Gold price holds ground due to safe-haven demand amid rising tensions in Middle East
- Gold price receives support from safe-haven flows as Joe Biden discussed contingency plans to strike Iran’s nuclear facilities.
- The dollar-denominated Gold could struggle as the US Dollar Index trades around its multi-year high of 109.56, reached on Thursday.
- The non-yielding Gold could receive support as yields on US Treasury bonds remained subdued.
Gold prices (XAU/USD) edges higher for the fourth consecutive session on Friday, building on a stellar performance in 2024 with gains exceeding 27%, the metal’s best annual return since 2010. This sustained rally is attributed to strong safe-haven demand amid persistent geopolitical tensions in the Middle East and the prolonged Russia-Ukraine conflict.
According to three sources cited by Axios, US President Joe Biden reportedly discussed contingency plans to strike Iran’s nuclear facilities if Tehran made significant progress toward developing a nuclear bomb before Donald Trump’s inauguration on January 20. These discussions highlight heightened concerns over Iran’s nuclear ambitions during the transitional period between administrations.
Traders remain vigilant about a possible recovery in China’s economy and its impact on Gold demand. In a New Year’s address on Tuesday, President Xi Jinping pledged to prioritize economic growth, promising more proactive policies to bolster China’s economy in 2025, according to Reuters.
Daily Digest Market Movers: Gold price gains support due to safe-haven flows
- The US Dollar Index (DXY), which measures the US Dollar’s (USD) performance against six major currencies, climbed to a fresh multi-year high of 109.56 on Thursday before easing slightly to trade around 109.20 at the moment of writing. The strength of the Greenback may have limited the upside potential of dollar-denominated Gold, as a stronger USD makes Gold more expensive for buyers using other currencies.
- Gold, a non-yielding asset, may have found support as yields on 2-year and 10-year US Treasury bonds remained subdued at 4.24% and 4.56%, respectively. Lower bond yields reduce the opportunity cost of holding Gold, making it more attractive to investors.
- The non-yielding Gold could face challenges as the Federal Reserve (Fed) signals a more cautious stance on rate cuts for 2025, suggesting a shift toward tighter monetary policy. This hawkish approach is shaped by uncertainties surrounding the potential economic policies of the incoming Trump administration.
- Record central bank purchases have bolstered the demand for the yellow metal. A World Gold Council survey suggests that major central banks will likely increase Gold purchases in 2025, further boosting demand for the precious metal.
- While China's manufacturing activity showed minimal growth in December, services and construction sectors have recovered. The data indicates that policy stimulus is beginning to impact certain sectors, as China prepares for new trade risks stemming from tariffs proposed by US President-elect Donald Trump.
- Reuters cited that Russia launched a drone strike on Ukraine's capital, Kyiv, on New Year's Day early Wednesday, resulting in two deaths, at least six injuries, and damage to buildings in two districts. Explosions echoed across the morning sky as Ukraine's air force issued warnings of incoming drones.
- Meanwhile, the Israeli military maintained pressure on northern Gaza, carrying out strikes in a suburb of Gaza City on Wednesday, according to medics. Airstrikes in Shejaia, a suburb of Gaza City, killed at least eight Palestinians. The Israeli military has not yet commented, and the identities of those killed in the attack remain unclear.
Gold price rises above nine-day EMA, reinforcing an up-leg scenario
Gold price trades near $2,660.00 per troy ounce on Friday, with the daily chart signaling an emergence of a bullish bias. The metal price has climbed above the nine- and 14-day Exponential Moving Averages (EMAs), indicating a strengthening bullish momentum in the short term. Moreover, the 14-day Relative Strength Index (RSI) has risen above the 50 level, further supporting the development of a bullish bias.
On the upside, the XAU/USD pair may explore the area around the psychological resistance of $2,700.00, followed by the next barrier at its monthly high of $2,726.34, reached on December 12.
The XAU/USD pair may test initial support around the nine- and 14-day EMAs at $2,635.00 and $2,633.00, respectively. Further support appears around its monthly low of $2,583.39, recorded on December 19.
XAU/USD: Daily Chart
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, 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 rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.