Spot gold continued its strong upward trajectory last week, hitting a record high of $5,111.17 per ounce on January 26, bringing its year-to-date gain to 17.91%. This reflects intense market demand for gold assets. Notably, after breaching the key milestone, the price experienced a brief pullback from its highs, with the $5,000 level providing effective support, indicating a normal profit-taking phase within the broader bullish trend.
Overall analysis suggests that the core drivers currently influencing gold can be summarized into three main aspects: First, escalating concerns over the Middle East conflict, combined with the unresolved Russia-Ukraine war, have sharply increased global risk aversion. The VIX index breaking above 20 has prompted significant capital inflows into gold as the ultimate safe-haven asset. Second, uncertainty surrounding Federal Reserve policy. The outcome of the FOMC meeting scheduled for this Thursday, January 29, is highly anticipated, with markets widely expecting interest rates to remain unchanged at 3.50%-3.75%. However, the focus is squarely on Chair Powell's policy guidance and developments regarding the new chair appointment. The leading candidate, Rick Riedl, known for his dovish stance and advocacy for rate cuts, has reinforced market expectations for monetary easing. Coupled with the risk of a U.S. government shutdown, this further undermines confidence in the U.S. dollar, thereby supporting gold prices. Third, support from institutional and central bank buying. Holdings of the world's largest gold ETF have risen to 1,086 tons, the highest level since 2022. The wave of central bank gold purchases continues, with global net purchases expected to reach 950 tons by 2026, creating a long-term stabilizing "ballast" effect. A surge in silver prices has triggered a resonance across the precious metals sector, further amplifying gold's upward momentum.
In the short term (one to four weeks ahead), gold prices are expected to exhibit strong, high-level volatility, with a potential near-term test of the $5,200-$5,300 per ounce range. Downside room appears limited. Should the Middle East situation escalate further, and if the Fed adopts a dovish stance or the new chair appointment is finalized, this would strengthen the rationale for betting on rate cuts, prompting sustained capital inflows. Gold could potentially trigger a short-term rally of 15%-25%, targeting the $5,300-$5,700 range. However, technical overbought conditions (RSI exceeding 85) combined with profit-taking could also trigger a correction of 5%-10%. Key support is seen at $5,000, with stronger support at $4,800. Should geopolitical tensions unexpectedly ease or if the Fed signals a hawkish turn, short-term gold price volatility would intensify.
Therefore, the direction of gold's near-term breakout in the latter part of this week will largely depend on the Fed's policy statement, Chair Powell's remarks, developments in the Middle East, and the progress of the U.S. government funding bill. From a medium- to long-term perspective, the foundation of the current gold bull market remains solid, underpinned by a triple support system of geopolitical risks, de-dollarization trends, and expectations for accommodative policy. However, caution is warranted regarding volatility risks following the recent sharp rally. Investors are advised to seize opportunities to build positions on dips, focusing on capital preservation and risk hedging as core objectives, while avoiding reckless chasing of highs. Close attention should be paid to the effectiveness of support around the $5,000 level and market movements following the resolution of key events.
