XAU/USD Retreats from Peak but Finds Support as Technical Picture Clarifies

Gold has experienced a significant pullback from recent highs, with XAU/USD recovering some ground during Monday’s European trading. The precious metal, which touched levels above $5,600 earlier in the week, has retreated to approximately $4,766 as profit-taking pressures emerged. The decline intensified following the announcement of Kevin Warsh as the incoming Federal Reserve chair—a transition signaling potential policy shifts that sparked a rotation away from haven assets. Adding to the selling momentum, CME Group’s decision to raise margin requirements for precious metals accelerated the liquidation, particularly impacting leveraged positioning across both gold and silver markets.

Technical Landscape: Bulls Face Resistance at Critical Junctures

From a technical perspective, XAU/USD remains in downward pressure despite showing some stabilization during the Asian-European overlap. The Moving Average Convergence Divergence indicator—which tracks the relationship between two moving averages—remains substantially below the zero line, though its flattening trajectory suggests momentum may be softening. The Relative Strength Index, measuring the pace of price changes, sits below the 40 level after bouncing from severely oversold conditions, indicating sellers still maintain control.

Traders monitoring upside attempts should watch the intraday high near $4,890 as an initial barrier. Beyond this, the psychologically significant $5,000 mark represents the next major resistance zone. Further gains would need to overcome the previous support area established at $5,100 (corresponding to the January 29 low). On the downside, the intraday low near $4,404 serves as immediate support; breaking below would expose the 78.2% Fibonacci level at $4,270, a key technical threshold calculated from the November-January rally’s full range.

Understanding Gold’s Role: Why Economic Cycles Matter

Gold occupies a unique position in global finance as both a store of purchasing power and a hedging mechanism. Unlike currencies tied to specific governments or central banks, the precious metal maintains value independently—a characteristic making it attractive during periods of currency depreciation or inflation concerns. This independence from monetary policy has made it particularly valuable to central bank reserves worldwide.

The appetite for gold reflects deeper economic dynamics. Central banks accumulated 1,136 tonnes in 2022 alone—valued at approximately $70 billion—marking the highest annual total on record. Emerging markets, particularly China, India, and Turkey, have aggressively expanded their reserves, viewing gold as essential to economic credibility. When XAU/USD strengthens, these institutions can diversify their asset bases more effectively during market turbulence.

The Dollar Connection: Why USD Movement Drives Gold

Gold exhibits an inverse relationship with the US Dollar—when the dollar appreciates, gold typically faces downward pressure, and vice versa. This dynamic occurs because gold is priced in dollars globally; a weaker greenback makes the metal cheaper for non-US buyers, stimulating demand. Similarly, US Treasury yields move inversely to gold prices; rising interest rates make holding non-yielding assets like gold less attractive.

Stock market correlations also matter significantly. Risk-on sentiment that strengthens equities tends to weigh on gold, while equity selloffs redirect capital toward the traditional safe-haven. Geopolitical tensions or recession fears can rapidly reverse this relationship, with investors fleeing to gold’s perceived security.

The current technical setup suggests XAU/USD remains vulnerable until it reclaims the $5,000 psychological barrier, with intermediate support providing cushion for further downside exploration.