Gold Forecast: XAU/USD hits new highs amid raised geopolitical uncertainty

Gold extended its gains, continuing to march higher into the first half of Tuesday’s session and printing fresh record highs as investors once again reach for safety. The latest gains to the tune of over 2.8% so far this week has been driven by a sharp deterioration in risk sentiment, sparked by renewed geopolitical tensions between the US and Europe. At the centre of it all is Donald Trump, who has re-affirmed his desire to acquire Greenland and, more controversially, threatened to impose tariffs on European nations that oppose the move. The reaction from Europe needs to be monitored. Germany has warned that Trump has crossed a red line, while reports suggest the European Union is actively considering retaliatory tariffs on as much as €93bn worth of US goods. For markets, this has all the hallmarks of a brewing transatlantic standoff. Equity markets have sold off on both sides of the Atlantic, US futures have turned lower, and gold has surged deeper into uncharted territory as investors hedge against rising political risk. Unless the situation de-escalates quickly, the gold forecast is likely to remain bullish.

 

Dollar extends drop, boosting gold forecast

 

Adding to gold’s appeal, the so-called “Sell America” trade appears to be making a comeback. The US dollar has weakened across the FX space, slipping even against risk-sensitive commodity-linked currencies. A softer dollar is providing an additional tailwind for precious metals, reinforcing gold’s rally at a time when confidence in US assets appears to be wobbling. For now, geopolitics and currency dynamics are pulling firmly in the same direction, strengthening the bullish gold forecast.

 

Where do we go from here?

 

European leaders now face a difficult balancing act. Diplomacy is the first and least confrontational option, but it has so far failed to shift Trump’s stance. There is, however, a narrow window this week. The World Economic Forum in Davos brings together Trump, the NATO secretary general and many of Europe’s most senior policymakers. Face-to-face talks could yet offer a way out, and perhaps this may be why markets have remained relatively stable compared to past episodes of trade war.  If diplomacy succeeds and tensions cool, risk assets could see a relief rally. In that scenario, gold could see some short-term weakness.

 

Another option for European leaders under consideration is delaying the ratification of the EU–US trade deal agreed last summer. This would undoubtedly hurt European economies as well, but it would also have clear consequences for the US. Markets would likely interpret this as a material escalation. Risk assets would come under pressure, volatility would rise, and gold would probably attract further safe-haven flows.

 

The most worrying scenario for markets is the possible use of the EU’s anti-coercion instrument. This legislation was never intended to be deployed against an ally like the United States, yet it is now being seriously discussed, particularly by French President Emmanuel Macron. If activated, it would allow the EU to impose tariffs, restrict US companies’ access to the single market, and limit American investment in Europe. Such a move would almost certainly provoke a swift and hostile response from Washington, raising the risk of a full-scale trade war. For equities, this would be deeply negative. Paradoxically this might even pressure gold, as the metal could be sold by leveraged traders to free up margin for losing long equity exposure.

 

Technical gold forecast: Key levels to watch

 

From a technical standpoint, let’s state the obvious: the trend remains decisively bullish. With that in mind, support levels need to be watched closing. Initial support sits at Monday’s breakout high around $4,690, which now acts as the first line of defence. Below that, Friday’s hammer head at $4,621 is the next key level to watch. A deeper pullback could expose $4,550, marking the previous all-time high from December, while $4,500 remains an important psychological support zone. As long as this area holds, bulls remain firmly in control.

 

 

On the upside, there is little in the way of meaningful resistance on the spot gold prices. Round-number levels at $4,800 and $4,900 are the next obvious reference points, with the key $5,000 handle standing out as the longer-term psychological target.

 

With geopolitics driving the narrative and the dollar under pressure, the broader gold forecast remains firmly skewed to the upside, at least while uncertainty continues to dominate the macro landscape.

 

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R