Gold (XAU/USD) hit a new all-time high, climbing above $4,700 as the new week started. This significant rise is attributed to a mix of geopolitical tensions, trade war fears, and increasing purchases by central banks worldwide. These recent dynamics have opened a unique window of opportunity for investors. They’re coming in with aggressive all-cash offers, driving prices up to record highs.
Central banks around the world took a powerful stand in 2022 by increasing their reserves by 1,136 tonnes of gold. This dynamic move was estimated to be worth $70 billion. That’s the most purchases in a year on record, reflecting the increasing appetite for gold as an asset of last resort. Emerging economies such as China, India, and Turkey are putting this trend into overdrive. They are on the glorious front line increasing their gold reserves to combat prevalent economic storms.
Market Dynamics Favor Gold
The fundamental backdrop is looking even more gold-bull-friendly. The geopolitical risks are escalating. The Relative Strength Index (RSI) for gold is at 69.96, just shy of entering overbought conditions. That hasn’t stopped buyers, with the asset still propped up just under the ascending channel resistance. The Moving Average Convergence Divergence (MACD) indicator is still hanging above the zero line. On the positive side, its recent upward move is a sign of increasing bullish momentum that could lead to even higher price appreciation.
The recent USD pullback of its strength over the last week supports this helpful backdrop for gold. This change is producing a more supportive environment for investors considering gold. Fears of a US and China trade war have rattled confidence in US assets. Consequently, the dollar has been subject to a dollar corrective move. The US Federal Reserve’s lowered expectations for more interest rate cuts keeps deeper dollar losses in check. This makes for an incredibly difficult set of circumstances for gold to perform in, serving as a headwind and a backdrop.
Geopolitical Tensions Drive Safe-Haven Demand
Recent pronouncements from US President Donald Trump have increased concerns that a much deeper and broader transatlantic trade war is brewing. On Saturday, Trump declared that he would impose an additional 10% tariff on goods from eight European nations starting February 1. This has drawn the ire of European officials, who have previously slammed this move. It has fueled fears of a new trade war and sent investors jostling into safe haven assets including gold.
The increasing pressures with Iran are clearly another big impetus driving gold higher. Iran made a further threat on Sunday that any attempt to kill Supreme Leader Ayatollah Ali Khamenei would bring total war. These remarks have increased insecurity about the region’s stability and driven up gold’s attractiveness as a safe-haven asset. This past May, Ukraine’s foreign minister, Andrii Sybiha, drew attention to especially worrisome evidence. Importantly, Ryan noted that Russia may have plans to strike protected facilities linked to nuclear power plants. As President Volodymyr Zelensky put it bluntly. He emphasized that Russia’s well-established military path – as evidenced by their unwillingness to pursue diplomatic resolution until the very last moment – has made investors skittish.
Central Banks Lead Gold Purchases
One of the most significant background factors shaping today’s gold market has been the lessons learned from the prior gold bear market. In 2022, central banks added more gold (in net purchases) than 1,136 tonnes to their reserves. This move indicates a huge change in their monetary policies. Central banks from emerging markets are leading this charge as they seek to diversify their assets amid global economic uncertainties.
China and India, in particular, have been rapidly and dramatically adding to their gold reserves, trying to strengthen their balance sheets and protect them from future market shocks. Now Turkey appears to be making a more serious effort to increase its reserves. This step is in line with a recent surge of countries placing gold at the center of their economic plans. This combined movement into gold emphasizes its importance as a safe haven. The move further illustrates a shift in the worldwide economic policy landscape toward valuing concrete assets, not just fiat currency.