Gold prices are experiencing downward pressure on Tuesday, struggling to build on the positive momentum from the previous day. The price of XAU/USD is encountering resistance below the $2,900 mark, with expectations that the Federal Reserve could maintain a high interest rate environment for an extended period.
A key factor contributing to the decline is the emergence of USD buying, which is causing flows to move away from the precious metal. Additionally, US trade tariffs, particularly those imposed by President Donald Trump on Mexico, Canada, and China, are weighing on investor sentiment. These tariffs have raised concerns about inflationary pressures and the potential for a global trade war, which could support gold as a safe-haven asset.
Despite these tensions, gold is struggling to attract strong buying interest. The ISM Manufacturing PMI report showing a slight contraction in February, coupled with rising inflation expectations due to tariffs, is supporting the notion that the Fed may keep its rates higher for longer. This scenario tends to be negative for non-yielding assets like gold, as higher interest rates increase the opportunity cost of holding the metal.
Furthermore, geopolitical risks, including the potential fallout from the stalled military aid to Ukraine, have been adding uncertainty to global markets, creating a counterbalance that could limit deeper losses in gold prices.
Market Outlook and Technical Analysis
From a technical perspective, gold’s failure to regain momentum above the $2,900 level raises caution among bullish traders. Oscillators on the daily chart are showing some weakness, though they are still holding in positive territory, suggesting potential dip-buying interest near $2,860. If gold fails to hold at this level, a further decline could occur towards the $2,800 level.
On the other hand, a sustained recovery above the $2,900 mark could spark renewed bullish momentum. If this happens, gold prices could aim for the next hurdle at $2,934, potentially leading to a test of the all-time high around the $2,956 level observed earlier this week.
US Trade Tariffs: The introduction of new tariffs could fuel inflation concerns and elevate demand for safe-haven assets like gold.
Federal Reserve Policy: Any indications that the Fed will keep rates higher for longer could negatively affect gold, as the opportunity cost of holding the precious metal increases.
Geopolitical Tensions: Ongoing uncertainty, particularly around the situation in Ukraine, may offer some support to gold prices.
Conclusion
Gold faces a delicate balance between risk-off sentiment due to geopolitical uncertainties and inflation concerns from trade tariffs, while rising USD and interest rate expectations pressure the price. Traders should be cautious and await the release of the Nonfarm Payrolls (NFP) report on Friday, as it could provide further direction for both USD and gold prices.
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