- Gold price holds steady just below the record high touched on Wednesday.
- US-China trade war anxiety boosts demand for the safe-haven XAU/USD pair.
- Fed rate cut bets and falling US bond yields also underpin the precious metal.
Gold price (XAU/USD) extends its consolidative price move heading into the European session on Thursday and remains close to the all-time peak touched the previous day. Concerns about a US-China trade war and the potential economic fallout from US President Donald Trump’s trade tariffs continue to act as a tailwind for the safe-haven bullion. Apart from this, bets that the Federal Reserve (Fed) will keep cutting interest rates in 2025 and the recent fall in the US Treasury bond yields offer additional support to the non-yielding yellow metal.
That said, a generally positive tone around the equity markets holds back traders from placing fresh bullish bets around the Gold price amid slightly overbought conditions on the daily chart. Apart from this, a modest US Dollar (USD) bounce from over a one-week low touched on Wednesday contributes to capping the upside for the commodity. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the XAU/USD remains to the upside. Hence, any corrective pullback might still be seen as a buying opportunity.
Gold price consolidates recent strong gains to all-time peak; bullish potential seems intact
- US President Donald Trump’s new 10% tariffs on Chinese imports came into effect on Tuesday. Furthermore, China announced retaliatory tariffs on some US goods, fueling worries about an escalating trade war and lifting the safe-haven Gold price to a fresh record high on Wednesday.
- The Automatic Data Processing (ADP) reported that private-sector added 183K in January compared to the previous month’s upwardly revised reading of 176K. This, however, was offset by the disappointing release of the US ISM Services PMI, which declined to 52.8 in January.
- The US Treasury yields dropped to their lowest level since mid-December in reaction to the softer data. Moreover, expectations the Federal Reserve will lower borrowing costs twice this year drag the US Dollar to over a one-week low and further benefit the non-yielding yellow metal.
- US Treasury Secretary Scott Bessent said late Wednesday, the focus is on bringing down 10-year Treasury yields, rather than the Fed’s benchmark short-term interest rate. Bessent added that interest rates will take care of themselves if we get energy costs down and deregulate the economy.
- The USD bulls failed to gain respite from Fed Vice Chair Philip Jefferson’s hawkish remarks on Thursday, saying that he is happy to keep the Fed Funds on hold at the current level. He will wait to see the net effect of US President Donald Trump’s policies, Jefferson noted further.
- Investors are looking to the US monthly employment details – popularly known as the Nonfarm Payrolls report – on Friday for further clues on the outlook for rates. In the meantime, traders on Thursday will take cues from the release of the usual US Weekly Initial Jobless Claims data.
Gold price bulls have the upper hand, dip-buying should limit any corrective slide
From a technical perspective, the Relative Strength Index (RSI) has moved above the 70 mark and warrants some caution for bullish traders. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for any further appreciating move. Nevertheless, the recent breakout through key barriers suggests that the path of least resistance for the Gold price remains to the upside.
In the meantime, any corrective slide is likely to find some support near the $2,855-2,850 area, below which the Gold price could slide further toward the $2,810-2,800 region. This is followed by the $2,773-2,772 horizontal resistance breakpoint, now turned support, which if broken might prompt some technical selling and pave the way for deeper losses.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
