- Gold price retains its bullish bias amid worries about Trump’s tariffs and a global trade war.
- Sliding US bond yields weigh on the USD and lend additional support to the precious metal.
- The Fed’s hawkish outlook could cap the XAU/USD pair amid slightly overbought conditions.
Gold price (XAU/USD) sticks to its positive bias through the Asian session on Thursday and currently trades around the $2,944 area, just below the all-time peak touched the previous day. Worries that US President Donald Trump’s tariffs on imported goods could spark a global trade war weigh on investors sentiment and underpin demand for the safe-haven bullion. Moreover, flight to safety triggers a fresh leg down in the US Treasury bond yields and further benefits the non-yielding yellow metal.
Meanwhile, declining US bond yields fail to assist the US Dollar (USD) to capitalize on this week’s modest bounce from a two-month low. This, in turn, acts as a tailwind for the USD-denominated commodities and lends additional support to the Gold price. That said, expectations for an extended pause on rates by the Federal Reserve (Fed), bolstered by hawkish FOMC minutes released on Wednesday, could cap the XAU/USD amid slightly overbought conditions on the daily chart.
Gold price draws support from flight to safety amid global trade war fears
- US President Donald Trump said on Wednesday that he will announce heavy tariffs on a number of products next month or even sooner, raising the risk of a further escalation of trade tensions and underpinning the safe-haven Gold price.
- US Commerce Secretary Howard Lutnick said in a Fox News interview that Trump’s goal is to abolish the Internal Revenue Service and let all the outsiders pay. Meanwhile, Trump said that a new trade deal with China is possible.
- The US Dollar struggles to capitalize on its modest recovery gains registered over the past two days amid a fresh leg down in the US Treasury bond yields and turns out to be another factor lending additional support to the precious metal.
- Minutes from the last FOMC policy meeting held in January released on Wednesday revealed officials noted a high degree of uncertainty that requires the central bank to take a careful approach in considering any further interest rate cuts.
- Fed Vice Chairman Philip Jefferson said that the US economic performance has been quite strong, the US labor market is solid, inflation has eased but is still elevated, and the path back to the 2% inflation target could be bumpy.
- Chicago Fed President Austan Goolsbee said that inflation has decreased but it is still excessive and once inflation falls, rates can fall more. This, however, fails to impress the USD bulls or influence the non-yielding yellow metal.
- Thursday’s US economic docket features the usual Weekly Initial Jobless Claims and the Philly Fed Manufacturing Index. This, along with speeches by influential FOMC members, could drive the USD and the XAU/USD pair.
- The market focus will then shift to the release of flash global PMIs on Friday, which should provide a fresh insight into the global economic health and provide some meaningful impetus to the safe-haven commodity.
Gold price overbought conditions warrant some caution for bullish traders
From a technical perspective, the daily Relative Strength Index (RSI) is holding above the 70 mark and warrants some caution for bullish traders. This, in turn, suggests that the Gold price is more likely to extend over a one-week-old range-bound price action. Nevertheless, the near-term bias remains tilted firmly in favor of bullish traders and suggests that the path of least resistance for the XAU/USD pair remains to the upside. A sustained strength beyond the $2,945-2,950 area will mark a fresh breakout through a short-term range and a consolidation phase. This would set the stage for an extension of a well-established uptrend witnessed over the past two months or so.
Meanwhile, any corrective pullback below the $2,928 immediate support could be seen as a buying opportunity near the $2,918 region, or the overnight swing low, and remain limited near the $2,900 mark. This is followed by the $2,880 horizontal support, which if broken decisively could drag the Gold price to the $2,860-2,855 area en route to the $2,834 zone. Some follow-through selling should pave the way for a fall toward the $2,815 region before the XAU/USD pair eventually drops to the $2,800 mark and the next relevant support near the $2,785-2,784 area.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.