Gold price shows strength amid trade war concerns and inflation fears

Gold prices (XAU/USD) continue to struggle for meaningful traction and remain in a consolidation phase at record levels. Concerns over US President Donald Trump’s trade tariffs potentially triggering a global trade war act as a tailwind for the safe-haven bullion. On the other hand, protectionist policies could also drive inflation, making gold an attractive hedge against rising prices. Fears regarding US consumer health and economic growth weigh on the US Dollar, which has dropped to its lowest level since December 10. Meanwhile, geopolitical tensions provide further support for gold.

Inflation fears boost Gold’s hedge status

The potential economic fallout from Trump's tariff plans supports gold’s strength with the safe-haven asset registering consistent gains for multiple weeks and recently reaching a record high. Trump's decision to impose hefty tariffs on steel and aluminum, along with additional duties on Chinese imports, has created market uncertainty. His recent announcement of more tariffs in the coming months has added further pressure on global markets. Meanwhile, recent data fueled concerns about US economic growth and dragged the US Dollar lower.

Moreover, the University of Michigan reported a decline in US consumer sentiment, reflecting growing economic uncertainty. Inflation expectations also surged, reaching their highest level in recent months, further strengthening gold’s status as an inflation hedge. However, despite these bullish factors, stronger US inflation figures and hawkish Federal Reserve minutes suggest that interest rates will remain high for an extended period, creating a headwind for gold. The market now awaits the upcoming release of the US Personal Consumption Expenditures (PCE) Price Index, which will be critical in shaping expectations about the Fed’s future rate decisions. Additionally, the release of preliminary US Q4 GDP data and Durable Goods Orders will provide further direction for gold prices. On the other hand, remarks from key policymakers could influence USD demand and, consequently, gold prices.

Gold technical strength

The monthly gold price chart shows a classic cup-and-handle pattern. This bullish formation suggests a potential continuation of the uptrend. The breakout above the $2,075 key level has confirmed the pattern and led to a strong upward momentum.

The price action has successfully surpassed previous resistance zones, turning them into new support levels. The 2024 price action suggests a retest of the breakout zone before continuing higher. A projected target for 2025 indicates a price range of approximately $3,000-$3200 with the possibility of upward surge.

Gold remains in a strong uptrend, supported by fundamental and technical factors. However, traders should watch for possible corrections and key support levels before entering new positions.

Conclusion

Gold prices struggle to establish a firm near-term direction but remain supported by safe-haven demand. Concerns over US trade tariffs, inflation risks, and a weaker US Dollar continue to provide bullish momentum. However, expectations of prolonged high interest rates by the Federal Reserve limit further gains. The upcoming PCE Price Index report and key economic data releases will provide more clarity on gold’s next move.

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