Gold prices (XAU/USD) surged to a fresh multi-month high during the early European session on Tuesday, reaching around the $2,729-2,730 level, the highest since November 6. This increase is driven by several factors, including remarks from US President Donald Trump, which have raised concerns about a potential new global trade war, increasing demand for gold as a safe-haven asset. Additionally, a further drop in US Treasury bond yields, fueled by expectations that the Federal Reserve will cut interest rates twice this year, has provided further support for the non-yielding yellow metal.
Market sentiment has shifted towards expectations that the Federal Reserve may pause its rate-cutting cycle later this month, particularly as Trump’s protectionist policies are seen potentially reigniting inflationary pressures. This has helped the US Dollar (USD) recover from an overnight decline, which had seen it reach a two-week low. Meanwhile, a positive risk-on sentiment in the equity markets may discourage traders from placing new bullish bets on gold in the short term. However, the broader economic backdrop continues to support gold’s prospects for near-term gains.
Trump’s Tariff Remarks and Declining US Bond Yields Boost Gold
President Trump’s announcement on Tuesday that he intends to impose 25% tariffs on Canada and Mexico, with a target date as soon as early February, has raised concerns about escalating trade tensions, further fueling demand for gold. Trump also hinted at possible tariffs on China if it does not approve a deal concerning TikTok, adding to the uncertainty that has bolstered gold’s appeal as a safe-haven asset.
Data released last week, including the US Producer Price Index (PPI) and Consumer Price Index (CPI), indicated signs of easing inflation, suggesting that the Federal Reserve may keep the option of rate cuts on the table by the end of the year. This, in turn, has dragged the yield on the 10-year US government bond to its lowest level in nearly three weeks.
US Dollar Stabilizes as Market Weighs Inflation and Fed Policies
The US Dollar regained some positive momentum after its recent dip, driven by concerns that Trump’s protectionist policies could spur inflation, potentially forcing the Federal Reserve to maintain its hawkish stance. This dynamic could limit further gains for gold in the near term. The market’s focus also remains on geopolitical developments, including the Israel-Hamas ceasefire and the possibility of Trump relaxing sanctions on Russia in exchange for a resolution to the Ukraine conflict, which has contributed to a generally positive risk sentiment.
Market Focus Shifts to Bank of Japan Meeting and Global Economic Health
Looking ahead, the market’s attention will turn to the Bank of Japan’s policy meeting on January 23-24. Additionally, the release of flash PMI data later in the week will be closely watched for insights into global economic conditions, which could increase volatility in gold markets.
Gold’s Technical Outlook: Bulls Eye $2,735 and Beyond
From a technical perspective, gold has found strong support above the $2,720 level, with oscillators on the daily chart gaining positive momentum and remaining distant from overbought conditions. This favors further upside potential, with a key resistance level at $2,735. A break above this could open the door for further gains toward the $2,746-2,748 range and potentially even challenge the all-time high around $2,790 from October 2024.
On the downside, gold may find support near the $2,700 mark. A decline below this level and a break of the overnight low near $2,689 could trigger technical selling, bringing gold closer to the $2,662-2,660 area. Further weakness could see the price dip towards the $2,635 region, with additional support at the $2,622-2,618 zone, which aligns with a short-term ascending trend-line from November and the 100-day Exponential Moving Average (EMA).
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