Gold (XAU/USD) dropped to around $5,030 during Asian trading on Tuesday, falling below $5,050 after two days of gains. This decline occurred as traders shifted their focus to equities due to a better risk outlook. They are also awaiting key US economic data later this week, including the postponed January US employment report.
US stocks rose on Monday, largely driven by technology shares, with the S&P 500 gaining and the Dow Jones Industrial Average setting a new record. A decrease in worries about the US-Iran conflict also lowered the demand for gold.
US-Iran Tension Eases
The US and Iran decided to continue indirect talks after reportedly having positive discussions. Iran’s President Masoud Pezeshkian labeled the recent nuclear talks as “a step forward.”
In January, China’s central bank added to its reserves for the 15th consecutive month. The People’s Bank of China reported gold holdings reaching 74.19 million fine troy ounces at the end of January, up from 74.15 million the previous month.
In the US, Treasury Secretary Scott Bessent mentioned that a criminal investigation of Kevin Warsh, Donald Trump’s nominee for Fed chair, could be possible if Warsh does not agree to cut interest rates. This raised concerns about the Fed’s independence, which in turn affected the US dollar and provided some support for dollar-priced gold.
Around this time last year, gold dipped below $5,050 an ounce as traders moved into equities amid a typical “risk-on” environment. This situation feels similar now, as the S&P 500 continues to rise, showing a 5.4% gain in January 2026, its best start to a year since 2019. This strength in the stock market may continue to draw money away from gold in the short term.
Central Bank Gold Purchases
A critical factor that prevented gold’s price from falling further in early 2025 was the steady buying by the People’s Bank of China. This trend continues; central banks around the world added nearly a record 1,037 tonnes to their reserves last year. This strong institutional demand creates a solid support level, suggesting that any significant price drops may present buying opportunities for official-sector participants.
Unlike last year, when worries about the Fed’s independence weakened the dollar, the current situation is different. The latest US Consumer Price Index showed inflation steady at 3.1%, which calmed market expectations for immediate and significant interest rate cuts. This has helped keep the US Dollar Index (DXY) strong, above 104, creating resistance for gold prices.
For derivatives traders, the upcoming weeks may show mixed trends. The robust equity market suggests buying put options on gold futures as a hedge against potential price declines. On the other hand, the strong support from central banks may make selling out-of-the-money puts a profitable strategy, betting that prices will not drop significantly below established support levels.
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