After losing more than 4% in the last week of the year, Gold (XAU/USD) gathered bullish momentum as trading conditions normalized. Although XAU/USD entered a consolidation phase following the rally seen earlier in the week, it managed to register weekly gains. December inflation data from the US and geopolitics could drive Gold’s action in the short term.
Gold rebounds following a bearish end to 2025
Gold registered heavy losses between the Christmas and New Year holidays. In the absence of fundamental drivers, profit-taking seemingly triggered this move, which was intensified by thin trading volumes.
As market conditions started to normalize, XAU/USD gained traction and rose more than 2.5% on Monday. Additionally, escalating geopolitical tensions on news of the US military entering Venezuela and capturing Venezuelan President Nicolás Maduro and his wife over the weekend, allowed Gold to benefit from safe-haven flows. After extending its rally and gaining another 1% on Tuesday, the renewed US Dollar (USD) strength and the CME Group’s decision to hike the margins on Gold and Silver futures caused XAU/USD to lose its traction.
Data published by the Automatic Data Processing (ADP) showed on Wednesday that US private-sector payrolls rose by 41,000 in December following the 29,000 decrease recorded in November. In another positive note, the Institute for Supply Management (ISM) reported that the Services Purchasing Managers’ Index (PMI) improved to 54.4 in December from 52.6 in November. Moreover, the Employment Index of the PMI survey rose into the expansion territory above 50 for the first time since June. With these data reassuring a Federal Reserve (Fed) policy hold in January, Gold edged lower midweek before going into a consolidation phase.
In the meantime, China announced export controls on Silver (XAG/USD). With this development, Silver prices rose sharply to begin the week, gaining more than 10% in a two-day span.
Reporting on the matter, “China ranks second in global silver mine production, but the Chinese dominate the silver market through their massive refining capacity. The country controls 60 to 70 percent of the world’s refined silver supply,” said Mike Maharrey, FXStreet contributor and market analyst at Money Metals Exchange. Although the CME’s margin hike caused XAG/USD to correct sharply, the Gold/Silver ratio, which represents the number of ounces of Silver required to purchase one ounce of Gold, fell nearly 4% for the week. At around 57, Gold/Silver ratio currently sits at its lowest level since August 2013.
On Friday, the US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls rose by 50,000 in December, compared to the market expectation of 60,000. On a positive note, the Unemployment Rate edged lower to 4.4% from 4.6% in November. The market reaction to the employment data remained short-lived and Gold held in the upper half of its weekly range heading into the weekend.
Gold traders to focus on geopolitics and US inflation data
The economic calendar will be relatively light in terms of data releases. On Tuesday, the BLS will publish the Consumer Price Index (CPI) data for December. Retail Sales and Producer Price Index for November will also be featured in the US economic docket, which are likely to be largely ignored by market participants.
December inflation data is unlikely to influence the Fed’s January decision in a significant way but a significant surprise, especially in the monthly core CPI print, could trigger a market reaction. A reading of 0.3%, or higher, could revive concerns over inflation remaining sticky and boost the USD in the immediate term. Conversely, a reading below 0.2% could have the opposite impact on the currency’s performance and help XAU/USD edge higher.
Investors will keep a close eye on geopolitical headlines throughout the week. US Secretary of State Marco Rubio is planning to meet with officials from Denmark and Greenland. In an interview with the NY Times, US President Donald Trump reiterated his intentions of taking over Greenland. “Ownership is very important,” Trump told the newspaper. “Because that’s what I feel is psychologically needed for success. I think that ownership gives you a thing that you can’t do with, you’re talking about a lease or a treaty. Ownership gives you things and elements that you can’t get from just signing a document.”
It is difficult to say what the next development will be in this matter but an escalation in tensions between the European Union and the US could cause investors to seek refuge. In this scenario, Gold could gather strength.
The unrest in Iran led by anti-government demonstrations across the country, including in the capital city Tehran, could affect the risk mood in the near future as well. US President Trump said that the US could take military action against Iran in case authorities use lethal force against protestors. In response, “America and Israel have tested their attack on Iran and this attack and strategy faced extreme failure,” said Iranian Foreign Minister Abbas Araghchi. “If they repeat it, they will face the same results,” he added and noted that they don’t desire a war but they are ready for it. A deepening conflict in Iran and an active involvement of the US could allow Gold to continue to benefit from safe-haven flows.
Gold technical analysis
The near-term technical outlook suggests that the bullish bias remains intact. The Relative Strength Index (RSI) indicator on the daily chart holds above 60 and XAU/USD trades well above the 20-day Simple Moving Average (SMA).
On the upside, $4,500 (static level, round level) aligns as the immediate resistance level ahead of $4,550 (record-high) and $4,600 (round level, upper limit of the ascending regression channel).
In case Gold drops below the $4,400-$4,390 region (static level, 20-day SMA), it could meet the next support at $4,360 (lower limit of the ascending channel). If this level fails and XAU/USD starts using it as resistance, technical sellers could take action and trigger an extended slide. In this scenario, the 50-day SMA, currently located at $4,230, could be seen as the next support level.
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.
