Gold sits and waits for US session to decide on either recovery or another leg lower
- Gold stays muted on Tuesday ahead of the start of the US trading session after Monday’s market rout.
- President Trump to call for a higher than 2.5% global tariff implementation.
- Bullion bulls see the window of opportunity for a new all-time high in Gold decreases.
Gold’s price (XAU/USD) sees traders throwing around the ball and not making any bets this Tuesday, following an over 1% dive the previous day after the Chinese AI startup DeepSeek shook up markets. The result is not tiny, with over $550 billion in market capitalization going up in smoke for Nvidia alone. Seeing the tech-sensitivity, cryptocurrencies such as Bitcoin also took it on the chin, with Bitcoin (BTC) losing over 6.5% at one point among one of the spillover victims in the financial markets asset classes.
This plays into the hands of United States (US) President Donald Trump, who again demanded global tariffs. The belief is that doing so will better defend US tech companies and shield them from China’s dumping strategy. The rule of thumb remains that tariffs are inflationary, which means higher yields, which is a headwind for Bullion.
Later this week, the Federal Reserve (Fed) and the European Central Bank (ECB) will decide on policy interest rates on Wednesday and Thursday, respectively.
Daily digest market movers: Tariffs confirmed by Trump and Bessent
- Asian markets will quiet down this week and next week. With the Lunar New Year starting this Tuesday, Chinese traders will return to the markets on February 5.
- The Financial Times reported that Treasury Secretary Scott Bessent is pushing for universal tariffs on US imports to start at 2.5% and rise gradually, citing unnamed sources. President Trump subsequently said that he wants across-the-board levies that are “much bigger” than that, Bloomberg reported.
- The CME FedWatch tool projects no change in the policy rate for Wednesday's Federal Reserve interest rate decision. Going forward, the probability of a 25 basis point rate cut in the May rate decision is 40.0%, compared to 51.5% for no change.
- Barrick Gold (ABX CN) and Mali will begin new negotiations on Tuesday. Barrick Gold and Mali will attempt to resolve a dispute over the alleged non-payment of taxes and the seizure of Barrick’s gold stocks by authorities in the country, Reuters reports.
Technical Analysis: Inflation concerns back on top
Gold’s price rally takes a step back and might need to look for further support on the downside. Markets were blindsided by President Trump, who had already come in quite hard over the weekend with tariff threats for Colombia and now puts universal tariffs back on the table. Inflationary concerns triggered by these tariffs could mean higher yields, possibly no rate cuts in 2025 and thus headwinds for Gold.
The first line of support remains at $2,721, a sort of double top in November and December broken on January 21. Just below that, $2,709 (October 23, 2024, low) is in focus as a second nearby support. In case both abovementioned levels snap, look for a dive back to $2,680 with a full-swing sell-off.
Although the window of opportunity is starting to close, Gold could still hit the all-time high of $2,790, which is around 2% away from current levels. Once above that, a fresh all-time high will present itself. Meanwhile, some analysts and strategists have penciled in calls for $3,000, but $2,800 looks to be a good starting point as the next resistance on the upside.
XAU/USD: Daily Chart
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
Author
Filip Lagaart
FXStreet
Filip Lagaart is a former sales/trader with over 15 years of financial markets expertise under its belt.
