Gold prices (XAU/USD) have held a positive bias around the $3,230 mark during the first half of Tuesday’s European session, remaining close to the record highs reached the previous day. However, despite this, the market has yet to see significant follow-through buying. The growing concerns surrounding the escalating U.S.-China trade war and its potential impact on the global economy continue to drive demand for gold as a safe-haven asset. Additionally, rising expectations for more aggressive policy easing by the Federal Reserve (Fed) and the broader bearish sentiment surrounding the U.S. dollar (USD) have provided further support to the non-yielding precious metal.
While U.S. President Donald Trump’s temporary tariff reprieve on key consumer electronics and indications that he may exempt the auto industry from the 25% tariffs have contributed to an overall positive risk tone in the markets, these developments have also capped the upside potential for gold. As a result, traders have been hesitant to place new bullish bets on the safe-haven metal. Despite this, the overall market conditions suggest that the path of least resistance for gold remains upward, with the potential for further price gains.
Trade Uncertainty and Economic Worries Continue to Bolster Gold
The global market continues to be influenced by the economic fallout from the trade policies of the Trump administration, with both the U.S. and China imposing tariffs on each other’s goods. On Friday, China raised tariffs on U.S. imports to 125% in retaliation for Trump’s decision to increase duties on Chinese goods to a record 145%. These tensions have kept gold prices hovering near their all-time peak.
The ongoing trade dispute has raised concerns about the economic outlook for the U.S., especially given that the country still relies on several hard-to-replace materials from China. This uncertainty, coupled with fears of a U.S. recession, has weighed on the U.S. dollar and prevented any significant recovery. Additionally, the market has begun to factor in the possibility that the Federal Reserve could resume its rate-cutting cycle in 2025, further diminishing the appeal of the U.S. dollar.
Fed officials have weighed in on the potential impact of the tariffs. Governor Christopher Waller highlighted that the administration’s trade policies could be a major shock to the U.S. economy, possibly forcing the Fed to reduce rates to avoid a recession. Meanwhile, Atlanta Fed President Raphael Bostic noted that tariffs could lead to upward pressure on prices, keeping inflation elevated for the foreseeable future. These uncertainties have further supported the demand for gold as a safe-haven asset.
Temporary Tariff Exemptions and Market Sentiment
The market sentiment briefly improved following announcements from the White House on Friday. The exemption of key electronics, including smartphones and computers, from the reciprocal tariffs temporarily eased some market concerns. Additionally, President Trump indicated on Monday that he was considering exemptions for the auto industry from the 25% tariffs, providing some relief to companies that need more time to transition to U.S.-made parts.
However, Trump also mentioned that these exemptions would be temporary and revealed plans to impose new tariffs on imported semiconductors in the coming week. He also threatened to introduce tariffs on pharmaceuticals in the near future, adding to the overall market uncertainty. This ongoing volatility, combined with the bearish sentiment surrounding the U.S. dollar, continues to provide support for gold prices.
Market Focus Shifts to U.S. Economic Data and Fed’s Future Moves
As traders await further developments, attention now turns to the U.S. economic docket for additional market-moving data. Tuesday’s release of the Empire State Manufacturing Index could provide insights into the health of the U.S. economy and potentially influence the U.S. dollar. However, the primary focus remains on Fed Chair Jerome Powell’s speech scheduled for Wednesday, as it may offer clues about the Fed’s future policy direction and impact gold prices.
Technical Outlook: Gold Eyes Retesting Record Highs
From a technical standpoint, gold has demonstrated resilience, holding above the $3,200 mark and continuing its upward trajectory. The recent bullish momentum suggests that the uptrend is far from over. However, the daily Relative Strength Index (RSI) is nearing overbought levels, suggesting that a period of consolidation or a modest pullback could precede any further gains.
Resistance is expected near the $3,245-$3,246 range, where gold reached its record high earlier this week. Should the price dip below the $3,200 level, it may present a buying opportunity, with strong support seen near the $3,168-$3,167 region. A break below this key support level could signal a deeper corrective move, with potential downside targets at $3,136, $3,115, and eventually the $3,100 mark.
In summary, while gold continues to be supported by trade uncertainties and concerns about the U.S. economic outlook, the market remains cautious, with traders awaiting further developments from both the U.S. and the Federal Reserve.
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