Gold Price Forecast: XAU/USD soars to record high near $5,050 amid geopolitical tensions

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Gold price (XAU/USD) rises to a fresh record high near $5,045 during the early Asian session on Monday. The precious metal extends its upside amid geopolitical risks and concerns over the US Federal Reserve (Fed).

Gold price jumps to an all-time high around $5,045 in Monday’s early Asian session.
Peace talks between Russia and Ukraine are set to continue next week.
Concerns over the Fed’s independence might support the Gold price.

The first three-way peace talks between Russia, Ukraine, and the US have concluded in Abu Dhabi with no apparent breakthrough, as fighting continues, according to the BBC. Ukrainian President Volodymyr Zelensky proposed a second meeting as early as next week, while a US official said that a fresh round will begin on February 1.

The ongoing conflict between Russia and Ukraine, along with military intervention in Venezuela and threats to annex Greenland, has boosted traditional safe-haven assets such as Gold.

Traders await US President Donald Trump’s pick for the next Fed Chair after Trump said he has finished interviewing candidates. A more dovish chair would increase bets on further interest-rate cuts this year, which could underpin the Gold price. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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.