Gold continues its strong gains during the day, targeting $4,950 as the US dollar weakens due to expectations of an interest rate cut by the Federal Reserve.

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Gold (XAU/USD) rose to near $4,950 during the first half of Tuesday's European trading session, amid short covering following two days of heavy selling. While investors digest Kevin Warsh's nomination to head the US Federal Reserve, expectations of a US central bank cut borrowing costs in 2025 are limiting the recent recovery of the US dollar from its four-year low. This, in turn, is seen as a key factor driving flows into the non-yielding precious metal.

Meanwhile, signs of easing tensions between the US and Iran over Iran's nuclear program, along with the US-India trade agreement, continue to support a risk-on sentiment, which could limit further gains for gold as a safe haven. However, the Chicago Board of Trade (CME) Group's decision to raise margin requirements on precious metals futures could be another negative development for the precious metal. This calls for caution before concluding that the recent sharp corrective decline from the $5,600 level, or from the all-time high recorded last week, has peaked.

 

Key Market Moves of the Day: Gold prices rose as expectations grew for an interest rate cut by the Federal Reserve, limiting the recent rally in the US dollar

  • On Friday, US President Donald Trump nominated Kevin Warsh to succeed Jerome Powell as Federal Reserve chair in May, subject to Senate confirmation. Warsh's history of pursuing hawkish monetary policies suggests he would remain vigilant if inflation expectations begin to rise.
  • Additionally, the Chicago Board of Trade (CME Group) announced over the weekend that it would raise profit margins on precious metals futures contracts starting at the close of trading on Monday. This triggered a sell-off for the second consecutive day, and gold prices fell to a four-week low on Monday.
  • On the economic data front, the Institute for Supply Management (ISM) reported on Monday that US factory activity expanded for the first time in a year. The manufacturing purchasing managers' index (PMI) rose to 52.6 in January, a significant rebound from 47.9 in the previous month.
  • Meanwhile, Trump announced on Monday that the US and India had reached a trade agreement and would immediately begin reducing tariffs on each other's goods. Furthermore, Iran and the US are expected to resume nuclear talks on Friday, which should boost investor confidence.
  • The US dollar fell on Tuesday, retreating from its highest level in over a week reached the previous day, providing some support for gold during the Asian trading session. However, the aforementioned negative factors may limit further gains for the precious metal.
  • The release of the December 2025 Job Openings and Labor Turnover Survey (JOLTS) and the Non-Farm Payrolls (NFP) report will be delayed due to the partial US government shutdown. Consequently, the dynamics of the US dollar will continue to influence the gold/US dollar pair (XAU/USD).