- Gold price continues to attract safe-haven flows amid persistent worries about Trump’s trade tariffs.
- Mostly upbeat US jobs data and inflationary concerns could allow the Fed to hold interest rates steady.
- A modest US Dollar strength might further contribute to capping the upside for the XAU/USD pair.
Gold price (XAU/USD) advances to the $2,880 region during the Asian session on Monday in reaction to US President Donald Trump’s plans to impose new 25% tariffs on all steel and aluminum imports into the US. The announcement sparks concerns about a global trade war and benefits the safe-haven precious metal. Moreover, expectations that Trump’s protectionist policies would reignite inflation turn out to be another factor that underpins the commodity’s status as a hedge against rising prices.
Meanwhile, the upbeat US employment details released on Friday and inflationary concerns could limit the scope for the Federal Reserve (Fed) to ease further. This, in turn, assists the US Dollar (USD) in gaining some follow-through positive traction at the start of a new week and could act as a headwind for the Gold price. Apart from this, overbought conditions on the daily chart might hold back traders from placing fresh bullish bets around the XAU/USD in the absence of any relevant US economic data.
Gold price remains well supported by concerns about a global trade war
- US President Donald Trump said on Sunday he will introduce new 25% tariffs on all steel and aluminum imports into the US. Trump added that he would announce reciprocal tariffs on all countries and match their tariff rates, bolstering the safe-haven Gold price at the start of a new week.
- Russian Deputy Foreign Minister Galuzin said there are no satisfactory proposals to start talks on Ukraine, and that statements from the West and Ukraine are nothing but buzz-building. US Vice President JD Vance is supposedly headed to Germany this week to lay out details of the US proposal.
- Investors remain worried that Trump’s trade policies could put upward pressure on inflation in the US. This, along with the upbeat US Nonfarm Payrolls (NFP) report released on Friday, could limit the scope for the Federal Reserve to ease further and might cap the non-yielding yellow metal.
- The closely-watched US monthly jobs data showed that the world’s largest economy added 143K jobs in January compared to 170K anticipated and the previous month’s upwardly revised reading of 307K. This, however, was offset by an unexpected dip in the Unemployment Rate to 4.0%.
- Minneapolis Fed President Neel Kashkari said on Friday that he would move towards supporting further rate cuts if they see good inflation data and the labor market stays strong. Kashkari added that we are in a good place to sit here until we get more information on the Trump administration’s policies.
- Chicago Fed President Austan Goolsbee noted that inconsistent policy approaches from the US government cause a high level of economic uncertainty that makes it difficult for policymakers to draw a bead on where the economy, and inflation specifically, is likely heading.
- Meanwhile, Fed Board of Governors member Adriana Kugler said that US growth and economic activity remain healthy overall, but noted that progress toward the 2% inflation goal has been somewhat lopsided. Recent progress on inflation is slow and uneven, Kugler added.
- A modest US Dollar strength might hold back traders from placing aggressive bullish bets around the commodity. Traders now look to Fed Chair Jerome Powell’s semi-annual congressional testimony and the US consumer inflation figures for a fresh directional impetus.
Gold price bulls seem rather unaffected by overbought RSI on the daily chart
From a technical perspective, the Relative Strength Index (RSI) on the daily chart is still flashing overbought conditions, warranting caution for bullish traders. This makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for an extension of the Gold price’s well-established uptrend. Hence, any subsequent move up is likely to confront some barrier near the $2,886-2,887 region, or the all-time peak, ahead of the $2,900 mark.
Meanwhile, any corrective slide below the $2,855-2,854 immediate support could be seen as a buying opportunity. This, in turn, should help limit losses for the Gold price near the $2,834 region. Some follow-through selling, however, could drag the XAU/USD further toward the next relevant support near the $2,815-2,814 area en route to the $2,800 round-figure mark.
Interest rates FAQs
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.