Daily Gold (XAU/USD)
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of Nicholas Maduro as president of Venezuela, President Trump’s recent erratic behavior at Davos, where he recently rescinded threats to impose tariffs on European allies regarding Greenland, and the threat to Canada over the weekend of a 100% levy over its potential trade deal with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.