29.12.202514:04 Forex Analysis & Reviews: Gold benefits from competition

Gold has struggled to stay above the record highs of $4,500 per ounce and has taken a step back due to the strengthening of the US dollar against major global currencies. Some investors chose to realize profits after an impressive increase of more than 70% in XAU/USD since the beginning of the year. This marks the second-best performance for the precious metal in history, the first being recorded in 1979 during a massive energy crisis and the accompanying inflation surge.

This time, supportive factors for gold include the easing of monetary policy by the Fed, geopolitical tensions, and central banks' diversification of reserves. The Federal Reserve cut the federal funds rate three times in 2025 and plans to do so a couple more times in 2026, as indicated by the futures market. The extensive monetary stimulus has weakened the dollar and put pressure on US Treasury yields. In such an environment, the precious metal feels right at home.

Dynamics of gold's share in reserves

An important driver supporting the bullish trend for XAU/USD has been the insatiable appetite of central banks. According to estimates from Goldman Sachs, they will purchase 70 tons of bullion monthly. This figure is close to the average of 66 tons over the past year and four times the amount purchased before 2022. Regulators from emerging markets are expected to continue showing particular activity. The fact that the share of gold in China's reserves is significantly lower than in the US or other developing countries encourages Beijing to increase demand.

Goldman Sachs believes that the combination of strong economic growth in the United States and the easing of the Fed's monetary policy creates favorable conditions for all commodity market assets. The precious metal will continue to benefit from heightened competition between central banks and specialized exchange-traded funds (ETFs). The firm estimates the share of ETFs in American investors' portfolios to be a modest 0.17%. An increase by 1 basis point is equivalent to a rise in XAU/USD by 1.4%.

Dynamics of gold stocks in central banks and ETFs

The intensifying competition between central banks and specialized ETFs for bullion risks is pushing gold prices above Goldman Sachs's previously announced forecast of $4,900 per ounce by the end of 2026.

Another advantage of the precious metal is geopolitics. Despite progress in negotiations between Washington and Kyiv, peace in Ukraine is still far off. The US blocking of tankers in Venezuela, along with American strikes in Syria and Nigeria, supports demand for gold as a safe-haven asset and maintains the upward trend for XAU/USD.

Technical analysis

Technically, the daily chart of gold shows a retreat from record highs. The pivot support level is around $4,447 per ounce. A confident breakout below this level would increase the risks of a pullback and provide grounds for short positions. Conversely, a rebound would be an opportunity to amplify previously opened long positions.