- Gold price retreats further from the record high amid a broad-based USD rally.
- Concerns over Trump’s new trade tariffs offer support to the XAU/USD pair.
- Bets for further policy easing by the Fed also help limit losses for the commodity.
Gold price (XAU/USD) attracts some buyers following intraday slide to the $2,772 regains, though it lacks bullish conviction and remains below the all-time peak touched on Friday. The US Dollar (USD) spikes back closer to over a two-year high in reaction to US President Donald Trump’s decision to impose tariffs on Canada, Mexico, and China. Moreover, speculations that the Federal Reserve (Fed) could delay cutting interest rates for some time this year, amid a rise in prices and surging consumer spending, contribute to driving flows away from the non-yielding yellow metal.
The markets, however, are still pricing in the possibility that the US central bank will lower borrowing costs twice by the end of 2025. Apart from this, concerns about the potential economic fallout from Trump’s trade policies, which triggers a fresh wave of the global risk aversion trade at the start of a new week, drag the US Treasury bond yields sharply lower. This, in turn, offers some support to the non-yielding Gold price and warrants some caution before positioning for any meaningful decline. Traders now look to the US ISM Manufacturing PMI for a fresh impetus.
Gold price is pressured by stronger USD; downside remains cushioned
- The US Dollar (USD) spiked in reaction to US President Donald Trump’s move to impose a 25% tariff on Canadian and Mexican imports, and a 10% tariff on goods from China, which, in turn, weighed heavily on the Gold price.
- The US Commerce Department reported on Friday that inflation closed out 2024 on a strong note and consumer spending surged in December, pushing back expectations for more aggressive easing by the Federal Reserve.
- The Personal Consumption Expenditures (PCE) Price Index edged higher to 2.6% on a yearly basis in December from 2.4%, while the core gauge climbed 2.8%, matching November’s reading and consensus estimates.
- Moreover, investors remain worried that Trump’s new tariffs, if sustained, could significantly worsen inflation in the US and validate hawkish Fed expectations, further undermining the non-yielding yellow metal.
- US Treasury Secretary Scott Bessent, who pushed for new universal tariffs on US imports to start at 2.5% and rise gradually, said that tariffs are inflationary and would continue to strengthen the US Dollar.
- Trump’s demand for lower interest rates, along with the prospects for further policy easing by the Fed, keeps the US Treasury bond yields depressed and could help limit any meaningful downside for the commodity.
- Furthermore, worries that Trump’s new tariffs could impact the global economy temper investors’ appetite for riskier assets and warrant some caution before placing bearish bets around the safe-haven XAU/USD.
- Traders now look to this week’s important US macro data scheduled for the beginning of a new month, starting with the release of the ISM Manufacturing PMI, to determine the near-term trajectory for the precious metal.
Gold price seems poised to prolong over a one-month-old uptrend
From a technical perspective, the intraday slide finds some support near the $2,772 horizontal resistance breakpoint. The said area should now act as a key pivotal point, which if broken might prompt some technical selling and drag the Gold price to the next relevant support near the $2,755 region. The corrective decline could extend further towards the $2,740 intermediate support en route to the $2,725-2,720 area. This is followed by the $2,700 round figure, which if broken decisively could pave the way for deeper losses.
On the flip side, the $2,790-2,800 zone now seems to act as an immediate hurdle ahead of the record high, around the $2,817 region. Given that oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone, some follow-through buying will be seen as a fresh trigger for bullish traders. This, in turn, will set the stage for an extension of the recent well-established uptrend from the December monthly swing low.
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.
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.
Source: https://www.fxstreet.com/news/gold-price-drifts-lower-as-usd-jumps-closer-to-two-year-top-after-trumps-new-tariffs-202502030444