04 Feb 2025

• Gold price consolidates its recent strong gains to a record high touched on Monday.
• Rebounding US bond yields and a modest USD uptick cap gains for the commodity.
• Worries about Trump's tariffs and inflation concerns lend support to the XAU/USD
• Gold prices (XAU/USD) are drawing some selling interest after a brief rise that brought them closer to their historical high, and they are currently positioned in neutral territory as the European session approaches on Tuesday. Nevertheless, the downside appears to be supported by worries regarding the possible economic repercussions of US President Donald Trump's trade tariffs, which may continue to bolster the appeal of this safe-haven asset. Additionally, the anticipation that Trump's protectionist measures could lead to increased inflation in the United States may further enhance the precious metal's role as a safeguard against escalating prices.
• Trump's choice to temporarily suspend tariffs on Mexico and Canada, following the establishment of a border security agreement with both countries, enhances investor confidence. This risk-on sentiment, combined with the Federal Reserve's hawkish pause last week, contributes to a slight increase in US Treasury bond yields. Consequently, this development aids the US Dollar (USD) in recovering its positive momentum after a recent decline from just above a two-year peak, while simultaneously discouraging bullish investors from making new investments in Gold, which is currently experiencing slightly overbought conditions.
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• US President Donald Trump's tariff proposals continue to raise apprehensions regarding a potential global trade conflict and its repercussions on the economy, resulting in a new all-time high for the safe haven Gold price on Monday. The Institute for Supply Management's (ISM) Manufacturing Purchasing Managers' Index rose from 49.3 in the previous month to 50.9 in January, surpassing the anticipated figure of 49.8. Furthermore, the Prices Paid Index, which gauges inflation, increased to 54.9 from 52.5, while the Employment Index saw a rise to 50.3 from 45.4, and the New Orders Index improved to 55.1. This development coincides with concerns that Trump's trade tariffs may lead to higher inflation, potentially reducing the Federal Reserve's motivation to further lower interest rates, thereby supporting the US Dollar.
• The sentiments expressed were mirrored by remarks from Chicago Fed President Austan Goolsbee, who cautioned that the ambiguity surrounding Trump's policies might hinder the central bank's intentions to reduce interest rates. In a separate statement, Atlanta Fed President Raphael Bostic remarked on Monday that while the US labor market continues to demonstrate unexpected strength, the threats of tariffs complicate the outlook.
  
  Trump's policies have the potential to increase inflation, which, in conjunction with anticipations of additional policy easing by the Federal Reserve, could serve as another advantage for the non-yielding yellow metal. Following a border security agreement, Trump temporarily suspended tariffs on Mexico and Canada, which enhances investor confidence and may limit any further upward movement for the safe-haven asset XAU/USD.
• The US Dollar attracts some dip-buyers following the previous day's turnaround from the vicinity of over a two-year high and might hold back bulls from placing fresh bets around the commodity.
• Tuesday's US economic docket features the release of Job Openings and Labor Turnover Survey (JOLTS) and Factory Orders data, which might provide some impetus to the USD and the Gold price.
• From a technical standpoint, the Relative Strength Index (RSI) is currently indicating slightly overbought conditions on the daily chart. Consequently, it would be wise to await some short-term consolidation or a minor pullback prior to the next upward movement. Nevertheless, any corrective decline below the immediate support level of $2,800 may still present a buying opportunity, with limitations likely near the horizontal resistance level of $2,773-2,772. However, if there is continued selling pressure, it could lead to a further drop towards the $2,755 area, potentially progressing to the $2,725-2,720 range and the $2,700 level.
  
  Conversely, bulls are expected to encounter resistance around the $2,830 mark, which corresponds to the record high reached on Monday. Should there be additional buying momentum, it would facilitate the continuation of a well-established trend that has been observed since the swing low in December, approximately at the $2,583 level.