Gold prices (XAU/USD) opened higher following the outbreak of geopolitical conflict due to the US arrest of Venezuelan President Nicolas Maduro.
The market is now closely monitoring the development of the arrest situation while awaiting the US ISM Manufacturing Purchasing Managers Index (PMI) data which is expected to be released later on Monday.
At 9.30 am, gold prices were at $4,398, up 1.55% since it opened in early trading on Monday in the Asian session.
According to a CNN report over the weekend, President Donald Trump's administration launched a major attack on Venezuela by arresting Maduro without the approval of Congress. Trump stressed that the US will temporarily govern Venezuela to ensure a successful transition of power that is considered 'safe and prudent'.
US Secretary of State, Marco Rubio, also announced the use of US influence over the Venezuelan oil industry as a tool of political pressure.
This aggressive US move has the potential to cause geopolitical tensions in the Latin American region and increase market uncertainty. This situation has given new life to safe-haven assets such as gold, which is considered safe as uncertainty increases.
On the monetary side, the minutes of the Federal Open Market Committee (FOMC) meeting showed that Fed officials are still divided on the timing and extent of interest rate cuts.
However, the majority agree on the possibility of interest rate cuts as long as inflation shows signs of declining. Low interest rates reduce the cost of holding non-dividend-yielding gold, supporting demand for the yellow metal.
The market is also waiting for the US December jobs report, which is expected to be released on Friday.
The forecast of an increase of 57,000 jobs will signal economic strength. If the data is stronger than expected, the US Dollar could strengthen and pressure the price of USD-denominated commodities, including gold.
The US-Venezuela conflict and the uncertainty of the Fed's monetary policy have created opposing dynamics in the gold market. While geopolitics support price increases, the prospect of a stronger dollar due to strong jobs data could pressure gold prices in the short term.
The market is currently struggling between conflicting political and economic factors, making gold prices very sensitive to any news developments.
