Gold prices saw a notable increase during the North American trading session on Thursday, following the release of the Producer Price Index (PPI), which came in slightly higher than anticipated. The surge in gold prices was driven by growing concerns over US President Donald Trump’s tariff threats, further bolstered by a weaker US dollar and declining US Treasury bond yields.
At the time of writing, gold was trading at $2,925, just shy of its recent record high of $2,942, set on February 11. Trump’s announcement of reciprocal tariffs escalated concerns, stating, “Whatever they charge us, we will charge them.” He further clarified that tariffs would not apply to products made in the US and added that tariffs on autos were forthcoming, alongside steel and aluminum tariffs.
Key Drivers Behind Gold’s Rally
Weakening US Dollar: The US Dollar Index (DXY), which tracks the greenback against a basket of six currencies, fell by 0.61% to 107.32, making gold more attractive as a safe-haven asset.
Plummeting Treasury Yields: US 10-year Treasury bond yields dropped by 10 basis points (bps) to 4.519%, while real yields, which move inversely to gold prices, fell to 2.072%. This decline in yields further supported gold’s appeal.
US Inflation Data: The January PPI registered a 0.4% month-over-month (MoM) increase, surpassing expectations of 0.3%, with the 12-month PPI rise at 3.5%. Core PPI (excluding food and energy) rose by 0.3% MoM and 3.6% year-over-year (YoY), exceeding the forecasted 3.3%.
Job Market Stability: Initial jobless claims for the week ending February 8 dropped to 213K, which was below expectations and improved from the previous week’s figure, signaling a resilient job market.
Central Bank Gold Purchases: In addition to the tariff concerns, the World Gold Council (WGC) highlighted that central banks have been purchasing over 1,000 tons of gold annually for the past three years, with a notable 54% year-over-year increase following Trump’s electoral victory. This strong demand from central banks has helped support gold prices in the long term.
XAU/USD Technical Outlook: Gold’s rally is gaining momentum, particularly after the signing of Trump’s executive order for reciprocal tariffs. The next key resistance level for gold is its all-time high of $2,942. If this level is breached, the price could reach $2,950 and potentially test the psychological $3,000 mark.
However, if gold prices dip below $2,900, the first support level is at $2,850, followed by further support at $2,790 (the October 31 cycle high) and $2,730 (the January 27 swing low).
Conclusion
The uncertainty surrounding US trade policies, combined with a potential reacceleration of inflation and central bank gold purchases, continues to drive gold prices higher. Traders are closely monitoring the evolving geopolitical situation and economic indicators for further signs of upward momentum. Gold remains a safe-haven asset amid this period of volatility, with prices poised to potentially break new records.
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