The week starts in the middle of a seven-week rally, which becomes vulnerable to a potentially bearish closing reversal top.
Last week, Xau/USD was $2882.48, up $21.23 or +0.74%.
Trade war concerns continue to support the demand for gold
Gold's strength this week was driven by rising trade tensions after US President Donald Trump signed an executive order targeting foreign state trade policies. The plan introduces mutual tariffs on countries that impose taxes on US imports, causing the fear of long-term trade standoffs.
Trump has curbed the implementation of immediate tariffs, but the move has injected fresh uncertainty into the global market. This uncertainty supports gold prices. This is because investors rely on retaliatory actions from key trading partners and the broader economic impact of potential new tariffs.
Inflation data reinforces concerns over price pressure
Recent US inflation reports have shown stronger price increases than expected, adding concerns that inflation will remain sustained. The Consumer Price Index (CPI) rose 0.5% in January, surpassing expectations, while wholesale inflation measured by the Producer Price Index (PPI) rose 3.5% year-on-year. Both measurements suggest inflationary pressures that could keep the Federal Reserve cautiously in interest rate cuts.
However, some aspects of these reports suggest potentially soft readings in the Future Personal Consumption Expense (PCE) Index, the Fed's preferred inflation gauge. The market will closely watch this data for further insight into inflation outlook.
