Gold prices are set to continue their upward trajectory, rising by more than 0.90% on Wednesday, driven by a weaker US Dollar and declining US Treasury bond yields. The ongoing China-US trade war has intensified, prompting investors to flock to gold for its safe-haven appeal. As of the latest trading, XAU/USD is hovering around $2,870, with bullish traders eyeing the $2,900 mark.
The rhetoric and policies of US President Donald Trump have further fueled investor demand for gold, which has reached uncharted territory. The economic landscape shows mixed signals, with the labor market remaining robust. January’s ADP Employment Change report revealed stronger-than-expected private sector hiring, with businesses adding more jobs than anticipated.
However, business activity data from S&P Global and the Institute for Supply Management (ISM) indicated signs of cooling in the services sector, providing a counterpoint to the positive labor market news.
Federal Reserve officials have voiced uncertainty regarding the potential impact of tariffs on inflation. Chicago Fed President Austan Goolsbee warned that overlooking the effect of tariffs would be a mistake. He stated, “If we see inflation rising or progress stalling in 2025, the Fed will face a difficult decision in determining whether inflation is caused by overheating or by tariffs.”
This uncertainty has persisted as President Trump delayed 25% tariffs on Mexico and Canada for 30 days but imposed 10% duties on China. The risk of global trade disruptions continues to fuel investor unease, driving them towards gold and away from the US Dollar.
Market Drivers: US Dollar Weakens, Treasury Yields Fall
The US Dollar Index (DXY), which measures the Dollar against a basket of six major currencies, has fallen 0.38% to 107.58 after hitting a three-week high of 109.88. The US 10-year Treasury bond yield has also dropped more than nine basis points to 4.244%, providing further support for gold.
US real yields, which move inversely to gold prices, decreased by three basis points, from 2.10% to 2.07%, giving a tailwind to the precious metal. January’s ADP National Employment Change report showed a rise in private sector jobs, up from 176K to 183K, surpassing the 150K forecast.
At the same time, the ISM Services PMI for January stood at 52.9, slightly exceeding the forecast of 52.8, though it marked a decrease from December’s 54.0. The S&P Global Services PMI also saw a decline from 56.8 to 52.9, still outperforming the anticipated 52.8.
Money market fed funds rate futures are currently pricing in 52 basis points (bps) of rate cuts by the Federal Reserve in 2025.
Technical Outlook: Gold Set to Challenge $2,900
Gold’s price continues to show bullish momentum, having reached a new all-time high of $2,882. The yellow metal is now poised to challenge the $2,890 level, with $2,900 being the next psychological target. Although the Relative Strength Index (RSI) has entered overbought territory, it remains short of extreme levels, suggesting the potential for continued upward momentum.
Should gold prices dip below $2,800, the next support levels to watch would be the January 27 swing low of $2,730, followed by $2,700.
Conclusion
Gold prices continue to benefit from a combination of factors, including a weaker US Dollar, declining Treasury yields, and heightened market uncertainty driven by the escalating China-US trade war. As investors seek safety in the precious metal, gold remains on track to challenge new highs, with the $2,900 mark in sight. While economic data reveals a strong labor market, concerns over cooling services sector activity and the uncertain impact of tariffs on inflation are contributing to a cautious market environment. With bullish momentum intact, gold is well-positioned to continue its upward trajectory, though traders should keep an eye on key support levels should prices experience a correction.
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