Gold News: XAU Breakout Above $5000 Driven by Geopolitical Chaos & Weak Dollar

Spot Gold Surges to Record $5111.51 on Geopolitical Risk, Weaker Dollar

Spot Gold continued its climb on Monday after piercing the psychological $5000 level earlier in the session. After touching another record high at $5111.51, the market is pausing as traders wait for the Comex futures opening. Geopolitical risk is one of the reasons for the rally today.

Another is the softer U.S. Dollar. We have a Fed meeting later this week on Wednesday. Although the market expects policymakers to leave rates unchanged at this meeting, post-announcement comments from Chairman Powell could be the source of volatility.

At 12:12 GMT, XAUUSD is trading $5090.14, up $102.595 or +2.06%.

Parabolic Rally Raises Correction Concerns

After a steady climb from the October 28 main bottom at $3886.46 and an even steeper move from the December 31 main bottom at $4274.02, the gold market has gone parabolic since the January 16 main bottom at $4536.49. This is a sign of strength and robust buying power, but it also makes the market vulnerable to a steep correction, once buyers decide to book some profits.

Other signs of a potential blow-off top are the increasing distance from trend line support at $4679.65 and the 50-day moving average at $4381.03. This type of analysis is typically used to identify “hot” markets with more accuracy than the Relative Strength Index (RSI), for example. This is because there is no limit on the time frame being observed. The RSI usually defaults to 14-days.

Multiple Fundamental Drivers Fuel Gold’s Ascent

Fundamentally, earlier, we mentioned the primary drivers of the rally are geopolitics and the softer U.S. Dollar, but some traders have expanded that list to include growing concerns around Federal Reserve independence and renewed fears of a government shutdown.

Geopolitical Chaos: From Venezuela to Greenland

Geopolitics is a broad-based reason for the rally, specifically, though, it likely means a combination of recent major events, including the surprise removal of Nicholas Maduro as president of Venezuela, President Trump’s recent erratic behavior at Davos, where he recently rescinded threats to impose tariffs on European allies regarding Greenland, and the threat to Canada over the weekend of a 100% levy over its potential trade deal with China. According to Barron’s, these are some of the factors driving investors to the safe harbor of gold.

Fed Independence Fears Add Safe-Haven Demand

The persistent criticism of Fed Chairman Jerome Powell also has investors concerned about Fed independence. Gold investors fear that removing Powell prematurely in an effort to lower interest rates, could backfire and forestall the rate cuts that the market is pricing in for later in the year.

And if that isn’t enough to feed the bull, traders are now saying that the recent killing of a U.S. citizen by Immigration and Customs Enforcement (ICE) officers in Minneapolis on Saturday, has driven up the risk of a second U.S. government shutdown in just a few months. The fear is that several Democrats who supported the Republican version of the bill to keep the government open, will now abstain from voting.

Market Outlook: Fundamentals Trump Valuation Concerns

Looking ahead, the rally is being supported by a slew of fundamental events and investors aren’t paying too much attention to price, which tells us unless there is a major change in the fundamentals or if investors finally decide that gold is too expensive, the trend in motion is likely to continue.

More Information in our Economic Calendar.