- Gold price gains a strong positive traction amid the flight to safety after Trump’s tariff remarks.
- Bets for more Fed rate cuts drag the US bond yields and further underpin the yellow metal.
- A modest USD recovery, along with a positive risk tone, might cap gains for the commodity.
Gold price (XAU/USD) attracts some follow-through buying for the second successive day and climbs to its highest level since November 6, around the $2,726 region during the Asian session on Tuesday. US President Donald Trump suggested imposing tariffs on Canada and Mexico in the near future, reviving trade war fears and boosting demand for the traditional safe-haven precious metal. Apart from this, declining US Treasury bond yields, led by bets that the Federal Reserve (Fed) will cut interest rates twice this year amid signs of abating inflation in the US, further drive flows towards the non-yielding yellow metal.
Meanwhile, expectations that Trump’s protectionist policies would reignite inflationary pressures and force the Fed to stick to its hawkish stance help the US Dollar (USD) to stage a goodish recovery from a two-week low touched on Monday. This, along with a generally positive tone around the equity markets, caps the upside for the Gold price. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the XAU/USD is to the upside. There isn’t any relevant US economic data due for release on Tuesday, leaving the commodity at the mercy of the broader risk sentiment and the USD price dynamics.
Gold price draws support from trade war fears, bets for two rate cuts by the Fed in 2025
- US President Donald Trump said this Tuesday that he intends 25% tariffs on Canada and Mexico, and the target date for tariffs would be as soon as early February. Trump further threatened that we could put tariffs on China if it doesn’t approve a TikTok deal, underpinning demand for the safe-haven Gold price.
- The US Producer Price Index (PPI) and Consumer Price Index (CPI) released last week pointed to signs of abating inflation. This suggests that the Fed may not exclude the possibility of rate cuts by the end of this year and drags the yield on the benchmark 10-year US government bond to a nearly three-week low.
- The US Dollar (USD) regains positive traction following the overnight slump to a two-week low amid expectations that Trump’s protectionist policies could boost inflation and force the Federal Reserve to stick to its hawkish stance. This, in turn, might cap any further gains for the non-yielding yellow metal.
- The Israel-Hamas ceasefire deal, along with hopes that Trump might relax curbs on Russia in exchange for a deal to end the Ukraine war, remains supportive of the positive risk tone. This might further hold back bulls from placing fresh bets around the XAU/USD in the absence of any relevant US economic data.
- The market focus will remain glued to the crucial Bank of Japan policy meeting on January 23-24 on Friday. Apart from this, the release of the flash PMI prints, which will be looked upon for fresh insight into the global economic health, should infuse volatility around the commodity during the latter half of the week.
Gold price seems poised to appreciate further, towards the $2,746-2,748 resistance zone
From a technical perspective, the Gold price now seems to have found acceptance above the $2,720 supply zone. Moreover, oscillators on the daily chart have been gaining positive traction and are still away from being in the overbought territory. This, in turn, favors bullish traders and suggests that the path of least resistance for the XAU/USD is to the upside. Hence, some follow-through strength towards the next relevant hurdle near the $2,735 horizontal zone, en route to the $2,746-2,748 region, looks like a distinct possibility. The momentum could extend further towards challenging the all-time peak, around the $2,790 area touched in October 2024.
On the flip side, any corrective pullback now seems to find decent support near the $2,700 mark. A subsequent slide below the overnight swing low, around the $2,689 region, could prompt some technical selling and drag the Gold price further towards the $2,662-2,660 region. The latter should act as a pivotal point, below which the XAU/USD could fall to the $2,635 zone en route to the $2,622-2,618 confluence – comprising a short-term ascending trend-line extending from the November low and the 100-day Exponential Moving Average (EMA).
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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