- Gold prices have gained strong positive traction amid the safety flight following President Trump's tariff remarks.
- Bets for further Fed rate cuts have pushed down U.S. Treasury yields, further supporting the yellow metal.
- A gradual recovery in the US dollar and positive risk tone could limit commodity gains.
Gold prices (XAU/USD) witnessed buying for the second consecutive day, rising to their highest since November 6 around $2,726 during Tuesday's Asian session. U.S. President Donald Trump has threatened to impose tariffs on Canada and Mexico in the near future, rekindling fears of a trade war and saying demand for precious metals, a traditional safe-haven asset, will increase. Separately, a fall in U.S. bond yields, driven by expectations that the Federal Reserve will cut interest rates twice this year, amid signs of slowing U.S. inflation, has pushed the non-yielding yellow metal This further accelerates the flow of funds to
Meanwhile, expectations that President Trump's protectionist policies will reignite inflationary pressures and force the Federal Reserve to maintain a hawkish stance are raising hopes that the U.S. dollar (USD) will remain on track from its two-week low on Monday. It's helping you make a recovery. This, combined with the generally upbeat mood in the stock market, has capped the upside for gold prices. Nevertheless, the fundamentals suggest that the path of least resistance for XAU/USD is to the upside. There are no relevant U.S. economic data scheduled for release on Tuesday, leaving the commodity at the mercy of broader risk sentiment and the price movement of the U.S. dollar.
Gold prices supported by trade war concerns, betting on two Fed rate cuts in 2025
- US President Donald Trump said on Tuesday that he intends to impose 25% tariffs on Canada and Mexico, with a target date for the tariffs to be as early as early February. President Trump also threatened to impose tariffs on China if it did not approve the TikTok deal, supporting demand for safe-haven gold prices.
- The US Producer Price Index (PPI) and Consumer Price Index (CPI) released last week showed signs of slowing inflation. That suggests the Fed may not rule out a rate cut before the end of the year, pushing the benchmark 10-year Treasury yield to its lowest level in nearly three weeks.
- The US dollar (USD) rallied overnight for a two-week high on expectations that President Trump's protectionist policies could push up inflation and force the Federal Reserve to stick to its hawkish stance. After falling to a low, it regained positive traction. This may limit further benefits of this non-yielding yellow metal.
- The ceasefire agreement between Israel and Hamas continues to support a positive risk narrative, with hopes that President Trump will ease restrictions on Russia in exchange for a deal to end the war in Ukraine. This could further prevent bulls from making new bets around XAU/USD in the absence of relevant US economic indicators.
- Market attention will remain focused on Friday on the key Bank of Japan policy meeting on January 23-24. Separately, the release of the PMI report, which will be closely watched for fresh insights into the health of the global economy, should increase volatility around commodities later in the week.
Gold prices appear poised to rise further towards the $2,746-$2,748 resistance zone
From a technical perspective, gold prices currently appear to be accepted above the $2,720 supply zone. Moreover, the oscillator on the daily chart has gained positive traction and has not entered overbought territory yet. This in turn favors bullish traders and suggests that the path of least resistance for XAU/USD is to the upside. Therefore, it looks like a distinct possibility that we will see some follow-through strength towards the next relevant hurdle around the $2,735 horizontal zone on the way to the $2,746-$2,748 area. This momentum could further extend towards challenging the all-time high near $2,790 reached in October 2024.
On the contrary, the correctional decline currently seems to be finding suitable support around the $2,700 mark. A subsequent break below the overnight swing low (around $2,689) could prompt a technical sell-off that could push gold prices further towards the $2,662-$2,660 range. The latter serves as a key point, below which XAU/USD could fall to the $2,635 zone on its way to the $2,622-$2,618 confluence. This constitutes a short-term uptrend line extending from the November low and the 100-day index. Moving average (EMA).
Gold FAQ
Gold has played an important role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from their brilliance and use as jewellery, precious metals are widely seen as safe assets, meaning they are considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation, as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. With the aim of supporting their currencies in times of turmoil, central banks tend to purchase gold to diversify foreign exchange reserves and improve perceptions of economic and currency strength. High gold reserves can be a source of confidence in a country's solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase amount since records began. Central banks in emerging countries such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve and safe haven assets. Gold tends to rise when the dollar falls, allowing investors and central banks to diversify their assets during times of turmoil. Gold is also inversely correlated with risk assets. Rising stock markets tend to push gold prices down, while declines in riskier markets tend to favor the precious metal.
Prices may vary depending on various factors. Geopolitical instability and fears of a deep recession can cause the price of gold to quickly rise from its safe-haven status. Gold, a non-yielding asset, tends to rise when interest rates fall, but rising costs usually put pressure on the yellow metal. Still, most moves will depend on how the US dollar (USD) behaves, as the asset is priced in dollars (XAU/USD). A strong dollar tends to suppress gold prices, while a weak dollar can push gold prices up.
