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Gold Trims Intraday Losses as Dovish Fed Bets and Weaker USD Offset Risk Appetite; Slips Below $5,050
Gold (XAU/USD) pared most of its early losses after dipping below the key psychological $5,000 level and trades with modest intraday weakness ahead of the European session on Tuesday. The outcome of Japan’s snap election on Sunday helped ease political uncertainty, while signs of easing tensions in the Middle East continue to support broader risk sentiment. This combination has reduced demand for traditional safe-haven assets, putting mild downward pressure on gold prices.
However, expectations that the US Federal Reserve (Fed) will deliver at least two 25-basis-point interest rate cuts in 2026 continue to cap losses in the non-yielding metal. Renewed concerns over the Fed’s independence have also kept the US Dollar (USD) under pressure near a one-week low, providing underlying support to gold. Traders remain cautious and reluctant to place aggressive directional bets ahead of key US economic data, including the Nonfarm Payrolls (NFP) report on Wednesday and US Consumer Price Index (CPI) inflation figures due on Friday.
Daily Market Drivers: Gold Sellers Hesitate as Fed-Driven USD Weakness Counters Positive Risk Tone
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Indirect talks between the US and Iran regarding the future of Iran’s nuclear program concluded on Friday with a broad agreement to keep diplomatic channels open. This development eased fears of military escalation in the Middle East, boosting investor confidence and reinforcing risk-on sentiment during the Asian session on Tuesday, which weighed on demand for safe-haven gold.
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Iranian Foreign Minister Abbas Araghchi described the eight-hour negotiations as a “good start” conducted in a constructive atmosphere. US President Donald Trump also characterized the talks as “very good” and confirmed that further meetings are scheduled for later this week.
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Meanwhile, concerns over the independence of the US Federal Reserve resurfaced after Trump stated on Saturday that he could challenge newly nominated Fed Chair Kevin Warsh if interest rates are not lowered. Adding to the uncertainty, US Treasury Secretary Scott Bessent did not rule out the possibility of a criminal investigation should Warsh ultimately refuse to cut rates.
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These developments come amid growing expectations that the Fed will cut interest rates twice more this year, with the first reduction likely as early as June. This outlook has pushed the US Dollar to its lowest level in over a week, supporting gold prices and limiting deeper downside in XAU/USD.
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The week begins with the release of US monthly Retail Sales data later on Tuesday during the North American session. However, market focus remains firmly on the highly anticipated US labor market report (NFP) on Wednesday and CPI inflation data on Friday, both of which are expected to drive USD volatility and provide fresh directional cues for gold.
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Adding to the bullish undertone, the People’s Bank of China (PBOC) reported on Saturday that it extended its gold purchases for a 15th consecutive month in January, underscoring steady demand amid fiscal concerns across major economies. Separate reports also suggest that Chinese regulators have advised financial institutions to limit exposure to US Treasuries due to concentration risks and market volatility.