- Gold price continues to attract safe-haven flows amid persistent worries about Trump’s trade tariffs.
- Mostly upbeat US jobs data and inflationary concerns could allow the Fed to hold interest rates steady.
- A modest US Dollar strength might cap gains for the XAU/USD pair amid overbought conditions.
Gold price (XAU/USD) retains its bullish bias through the first half of the European session on Monday and touches a fresh all-time high, around the $2,896-$2,897 region in the last hour. Concerns about the potential economic fallout from US President Donald Trump's tariffs and escalating US-China trade tensions continue to boost demand for the safe-haven bullion. Moreover, concerns that Trump's protectionist policies would reignite inflation in the US turn out to be another factor that benefits the precious metal's status as a hedge against rising prices.
Meanwhile, the US Dollar (USD) attracts some follow-through buyers amid bets that the Federal Reserve (Fed) would stick to its hawkish stance amid a still resilient US labor market and inflationary concerns. This, however, does little to dent demand for the non-yielding Gold price or hinder the strong intraday positive move. That said, overbought conditions on the daily chart might hold back traders from placing fresh bullish bets around the XAU/USD. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the commodity is to the upside.
Gold price continues to attract safe-haven flows amid trade war fears
- US President Donald Trump said on Sunday he will introduce new 25% tariffs on all steel and aluminum imports into the US. Trump added that he would announce reciprocal tariffs on all countries and match their tariff rates, bolstering the safe-haven Gold price at the start of a new week.
- Russian Deputy Foreign Minister Galuzin said there are no satisfactory proposals to start talks on Ukraine, and that statements from the West and Ukraine are nothing but buzz-building. US Vice President JD Vance is supposedly headed to Germany this week to lay out details of the US proposal.
- Investors remain worried that Trump's trade policies could put upward pressure on inflation in the US. This, along with the upbeat US Nonfarm Payrolls (NFP) report released on Friday, could limit the scope for the Federal Reserve to ease further and might cap the non-yielding yellow metal.
- The closely-watched US monthly jobs data showed that the world's largest economy added 143K jobs in January compared to 170K anticipated and the previous month's upwardly revised reading of 307K. This, however, was offset by an unexpected dip in the Unemployment Rate to 4.0%.
- Minneapolis Fed President Neel Kashkari said on Friday that he would move towards supporting further rate cuts if they see good inflation data and the labor market stays strong. Kashkari added that we are in a good place to sit here until we get more information on the Trump administration's policies.
- Chicago Fed President Austan Goolsbee noted that inconsistent policy approaches from the US government cause a high level of economic uncertainty that makes it difficult for policymakers to draw a bead on where the economy, and inflation specifically, is likely heading.
- Meanwhile, Fed Board of Governors member Adriana Kugler said that US growth and economic activity remain healthy overall, but noted that progress toward the 2% inflation goal has been somewhat lopsided. Recent progress on inflation is slow and uneven, Kugler added.
- A modest US Dollar strength might hold back traders from placing aggressive bullish bets around the commodity. Traders now look to Fed Chair Jerome Powell's semi-annual congressional testimony and the US consumer inflation figures for a fresh directional impetus.
Gold price bulls could take pause for a breather amid overbought daily RSI
From a technical perspective, the Relative Strength Index (RSI) on the daily chart is still flashing overbought conditions, warranting caution for bullish traders. This makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for an extension of the Gold price’s well-established uptrend. Hence, any subsequent move up is likely to confront some barrier near the $2,886-2,887 region, or the all-time peak, ahead of the $2,900 mark.
Meanwhile, any corrective slide below the $2,855-2,854 immediate support could be seen as a buying opportunity. This, in turn, should help limit losses for the Gold price near the $2,834 region. Some follow-through selling, however, could drag the XAU/USD further toward the next relevant support near the $2,815-2,814 area en route to the $2,800 round-figure mark.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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.
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