After falling more than 4% in the final week of the year, gold (XAU/USD) has regained bullish momentum as trading conditions normalize.
XAU/USD entered a consolidation phase following the gains seen at the beginning of the week, but was able to record weekly gains. December US inflation data and geopolitical developments could drive gold movements in the short term.
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Gold prices rebound as bearish end to 2025
Gold suffered a significant decline between Christmas and the New Year. Profit-taking appears to have driven this move due to the lack of fundamental factors, but thin trading volume added further momentum.
As market conditions started to normalize, XAU/USD gained momentum, rising over 2.5% on Monday.
Additionally, gold could benefit from flows into safe-haven assets as geopolitical tensions escalated over the weekend following news that US troops entered Venezuela and detained President Nicolas Maduro and his wife.
After extending its gains and rising another 1% on Tuesday, XAU/USD lost momentum due to fresh US dollar (USD) strength and CME Group’s decision to increase margins on gold and silver futures.
U.S. private sector payrolls rose by 41,000 jobs in December, following a decline of 29,000 in November, according to data released Wednesday by Automatic Data Processing (ADP).
In another bright spot, the Institute for Supply Management (ISM) reported that the Services Purchasing Managers Index (PMI) improved to 54.4 in December from 52.6 in November.
Additionally, the PMI survey’s employment index rose to above 50 expansion territory for the first time since June.
With these data reaffirming the Federal Reserve’s decision to keep policy unchanged in January, gold fell slightly in mid-week before entering a consolidation phase.
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Meanwhile, China announced export restrictions on silver (XAG/USD). Following this development, silver prices soared early in the week, rising more than 10% in two days.
Commenting on this issue, Mike Mahary, FXStreet contributor and market analyst at Money Metals Exchange, said, “China is the world’s second largest producer of silver mines, but China dominates the silver market with its vast refining capacity. China controls 60 to 70 percent of the world’s refined silver supply.”
Although XAG/USD corrected significantly due to CME’s margin hike, the gold/silver ratio, which measures the number of ounces of silver needed to buy one ounce of gold, fell nearly 4% for the week.
The gold-silver ratio is currently around 57, its lowest level since August 2013.
On Friday, the U.S. Bureau of Labor Statistics (BLS) announced that nonfarm payrolls increased by 50,000 in December, compared to market expectations of 60,000.
On a positive note, the unemployment rate fell slightly to 4.4% from 4.6% in November. The market reaction to the jobs report was short-lived, with gold holding onto the lower half of its weekly range over the weekend.
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Gold traders focus on geopolitics and US inflation data
Data releases on the economic calendar will be relatively light. The BLS will release consumer price index (CPI) data for December on Tuesday.
Retail sales and producer price index data for November will also be included in the U.S. Economic Report, but are likely to be largely ignored by market participants.
December’s inflation numbers are unlikely to have a major impact on the Fed’s decisions in January, but a big surprise, especially in the monthly core CPI data, could trigger a market reaction.
A rise of more than 0.3% could reignite concerns that inflation will remain high and push the dollar higher in the short term.
Conversely, a drop below 0.2% could have the opposite impact on the currency’s performance and help XAU/USD rise.
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Investors will be keeping an eye on geopolitical headlines throughout the week. US Secretary of State Marco Rubio is scheduled to meet with Danish and Greenlandic officials.
In an interview with the New York Times, US President Donald Trump reiterated his intention to occupy Greenland. “Ownership is very important,” President Trump told the newspaper.
“Because I feel it’s psychologically necessary to be successful. I think ownership gives you things that you can’t do on your own. We’re talking about leases and treaties. Ownership gives you things and elements that you can’t get by just signing a document.”
It’s hard to say what the future holds for this issue, but an escalation in tensions between the EU and the US could cause investors to flee.
In this scenario, gold could gather strength.
The turmoil in Iran, sparked by anti-government demonstrations across the country, including the capital Tehran, is likely to affect the risk mood in the near future.
US President Donald Trump has said the US may take military action against Iran if authorities use lethal force against protesters.
With the escalation of the Iranian conflict and the active involvement of the United States, gold could continue to benefit from the flow of funds to safe havens.
