Gold slumps 3%, but set for its strongest monthly gain since 1980 

Despite a sharp, more than 4% slide on Friday—fueled by rumors of a potentially more hawkish Federal Reserve chair—gold remains on course for its strongest monthly gain since 1980, as geopolitical and economic uncertainties continue to drive investors toward the traditional safe-haven asset.

Prices had come under pressure as investors resorted to booking profits after the yellow metal on COMEX breached the $5,600 per ounce on Thursday. 

After hitting new session highs, both gold and silver saw sharp reversals. Additionally, spot gold initially surged past $5,595 per ounce, and silver briefly topped $120 per ounce, but both metals subsequently retreated sharply.

“In this environment, gold is increasingly being used as a source of liquidity rather than a traditional safe-haven asset,” Ewa Manthey, commodities strategist at ING Group, said in a note. 

Market participants will be focused on two key events: the forthcoming US Producer Price Index (PPI) report on Friday and developments regarding US President Donald Trump’s selection for the new Federal Reserve (Fed) Chair.

Market drivers and economic outlook

Heading for its sixth consecutive monthly increase, gold prices have already climbed over 20% in January.

This puts the current month on track for the largest monthly gain seen since 1980.

Speculation is mounting that former Fed Governor Kevin Warsh will be named as the replacement for Fed Chair Jerome Powell, with President Trump announcing on Thursday his intention to reveal his selection on Friday.

Lallalit Srijandorn, editor at FXStreet, said in a report:

A more dovish chair would increase bets on further interest-rate cuts this year, which could lift the gold price. 

Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.

The dollar saw a recovery from its multi-year lows, partly due to the Federal Reserve’s decision on Wednesday to maintain current interest rates.

Despite this, the dollar is still set for its second consecutive weekly drop.

The strengthening dollar impacts gold prices by making the greenback-priced commodity more costly for international purchasers.

Expectations in the market remain for two interest rate reductions in 2026, according to the CME FedWatch tool.

Meanwhile, customs data released on Thursday indicated that gold exports from Switzerland to the UK reached their highest level since August 2019.

The UK is home to the world’s largest over-the-counter gold trading hub.

Geopolitics and price forecast

On the geopolitical front, Iran countered a warning from Trump, which followed a US attack, by threatening to retaliate against the US, Israel, and their allies. 

Trump’s warning on Wednesday urged Iran to negotiate a “fair and equitable deal” at the table, suggesting that a failure to do so would result in a much more severe US attack.

Gold initially fell to a daily low, dropping below $5,100, but then reversed course to recover toward $5,300 overnight. 

This retracement suggests that some traders are realizing gains, as indicated by the Relative Strength Index (RSI) moving from approximately 89 down to 79, according to a FXStreet report.

Should gold prices drop below $5,100, the critical support level for buyers to watch is $5,000, according to the report.

At the time of writing, the COMEX gold contract was at $5,200.16 per ounce, down 2.9%, while the silver contract was down 3.7% at $110.210 per ounce. 

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