- Gold reaches new high as US 25% tariffs on steel and aluminum stoke fears of global economic slowdown and inflation.
- Market sentiment remains unexpectedly positive, with Wall Street up and the US Dollar strengthening alongside Gold.
- Upcoming testimony from Fed Chair Jerome Powell and key US economic reports to influence gold’s next moves.
Gold price rallied sharply and set a record high above $2,900 on Monday after the President of the United States (US), Donald Trump, enacted tariffs of 25% on base metals. Traders seeking safety pushed the non-yielding metal higher amid fears that Trump trade policies could derail the global economy and drive inflation higher.
The XAU/USD pair trades at $2,905 after hitting an all-time high of $2,911. On Sunday, Trump said that steel and aluminum imports into the US are set to be hit by 25% duties, including proceeds from Canada, the United Arab Emirates (UAE) and Mexico. This pushed Gold prices higher, with bulls finally clearing the $2,900 barrier and setting their sights on $3,000 a troy ounce.
Despite this, the market mood remains positive as Wall Street remains in positive territory. The Greenback also climbs alongside Gold, while US Treasury bond yields remain steady, which is usually a headwind for the prices of precious metals.
Bullion has also benefited from central bank demand. The World Gold Council (WGC) revealed that banks bought more than 1,000 tons for the third year in a row in 2024. After Trump’s victory, purchases by central banks grew over 54% YoY to 333 tons, the WGC calculated.
Despite this, Federal Reserve (Fed) officials are turning slightly cautious, which has kept Gold prices from appreciating sharply. Fed Chairman Jerome Powell’s testimony in the US Congress will be scrutinized by traders. Any hawkish hints could weigh on the yellow metal.
The US economic docket will feature Fed speakers, inflation figures, employment data and Retail Sales.
Daily digest market movers: Gold price poised to hit $3,000
- The US 10-year Treasury bond yield stays firm at 4.489%.
- US real yields, which correlate inversely to Bullion prices, drop one basis point to 2.055%, a tailwind for XAU/USD.
- The New York Fed Survey of Consumer Expectations indicated that US consumers anticipate inflation to stay at 3% in the near term. Additionally, long-term expectations for five years from now have risen, with consumers now expecting prices to increase to 3% in December, up from a previous expectation of 2.7%.
- Last week, US employment data was mixed, though the dip in the Unemployment Rate hints at the strength of the labor market. This might prevent the Fed from cutting rates soon.
- Money market fed funds rate futures are pricing in 39 basis points of easing by the Federal Reserve in 2025.
XAU/USD technical outlook: Gold prices set to challenge $2,900
Gold’s uptrend is set to extend unless a daily close below $2,900 happens, which could pave the way for a pullback. Momentum remains bullish as the Relative Strength Index (RSI) is overbought, though as long as it remains below the most extreme reading of 80, bulls could still push prices higher.
The next resistance would be the psychological figure of $2,950, followed by $3,000. Conversely, if XAU/USD tumbles below $2,900, the first support would be $2,850, ahead of the October 31 swing high of $2,790. Further weakness is seen at the January 27 swing low of $2,730.
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.
