Is Gold Heading to $4,350? Fed Rate Cut Expectations and Geopolitical Tensions Fuel XAU/USD Rally

Gold’s momentum continued into 2026, with XAU/USD trading near $4,350 during Friday’s Asian market open. The precious metal’s strength reflects a combination of monetary easing expectations and heightened uncertainty in global markets.

Fed Rate Cut Bets Drive Gold Demand

The prospect of further US interest rate reductions this year remains a key tailwind for gold. After the Federal Reserve lowered rates by 25 basis points in December, bringing the federal funds rate to 3.50%-3.75%, market participants are positioning for additional cuts ahead. Lower interest rates reduce the carrying costs of holding non-yielding assets like gold, making them more attractive relative to cash and bonds.

Despite the December rate cut decision, Fed officials remain divided on the pace of future reductions. While most policymakers see room for additional cuts as inflation continues to moderate, disagreement persists on timing and magnitude. This uncertainty itself supports safe-haven demand for gold.

65% Annual Gain: Gold’s Best Year Since 1979

Gold capped 2025 with remarkable performance, delivering a 65% annual return—the strongest showing in nearly 50 years. The surge was driven by a combination of geopolitical tensions, divergent central bank policies, and safe-haven flows as investors sought protection amid global uncertainties.

Geopolitical Risks Keep Safe-Haven Flows Strong

Ongoing escalations in the Israel-Iran conflict and rising US-Venezuela tensions continue to support gold’s safe-haven appeal. During periods of international stress, traders typically rotate capital into assets perceived as wealth-preserving, and gold remains the traditional choice.

CME Margin Hikes Could Slow the Rally

A headwind emerged as the CME Group increased margin requirements for gold, silver, and other precious metals. These changes force traders to deploy more capital to maintain their positions, potentially limiting speculative buying and capping near-term upside. Traders may also lock in profits from the year’s stellar gains, adding additional selling pressure.

The interplay between supportive fundamentals—rate cut expectations and geopolitical risks—and technical constraints from higher margin requirements will likely determine gold’s direction above $4,350.