21 Jan 2025

• Gold price gains a strong positive traction amid the flight to safety after Trump’s tariff remarks.
• Bets for more Fed rate cuts drag the US bond yields and further underpin the yellow metal. 
• A modest USD recovery, along with a positive risk tone, might cap gains for the commodity.
• Gold prices (XAU/USD) are experiencing continued buying interest for the second consecutive day, reaching their highest point since November 6, approximately in the $2,726 range during the Asian trading session on Tuesday. US President Donald Trump has indicated the possibility of imposing tariffs on Canada and Mexico in the near future, which has reignited concerns over a trade war and increased demand for this traditional safe-haven asset. Additionally, the decline in US Treasury bond yields, driven by expectations that the Federal Reserve (Fed) may implement two interest rate cuts this year due to signs of easing inflation in the United States, is further contributing to the inflow of investments into the non-yielding yellow metal.
• Expectations that Trump's protectionist measures may rekindle inflationary pressures and compel the Federal Reserve to maintain its hawkish approach have contributed to a notable recovery of the US Dollar (USD) from a two-week low reached on Monday. This recovery, combined with a generally optimistic sentiment in the equity markets, limits the potential for an increase in Gold prices. However, the underlying fundamentals indicate that the most likely trajectory for the XAU/USD is upward. With no significant US economic data scheduled for release on Tuesday, the commodity remains vulnerable to broader risk sentiment and fluctuations in USD pricing.
• US President Donald Trump announced on Tuesday his intention to impose 25% tariffs on Canada and Mexico, with the implementation date potentially set for early February. He also indicated that tariffs could be applied to China if a TikTok agreement is not reached, which has increased demand for safe-haven gold.
• Recent data from the US Producer Price Index (PPI) and Consumer Price Index (CPI) released last week indicates a potential easing of inflation. This development suggests that the Federal Reserve may consider rate cuts by the end of the year, contributing to a decline in the yield of the benchmark 10-year US government bond, which has reached a nearly three-week low.
• The US Dollar (USD) has regained some strength following a drop to a two-week low, as expectations grow that Trump's protectionist measures could lead to increased inflation, compelling the Federal Reserve to maintain its hawkish approach. This situation may limit further increases in the price of gold, which does not yield interest.
• The ceasefire agreement between Israel and Hamas, along with speculation that Trump may ease restrictions on Russia in exchange for a resolution to the Ukraine conflict, continues to foster a positive risk sentiment. This environment may deter investors from making new commitments in the XAU/USD market, especially in the absence of significant US economic data
• Market attention will be directed towards the important Bank of Japan policy meeting scheduled for January 23-24. Additionally, the upcoming release of flash PMI figures is anticipated to provide fresh insights into global economic conditions, potentially introducing volatility in the commodity markets during the latter part of the week.

• Gold price seems poised to appreciate further, towards the $2,746-2,748 resistance zone

  From a technical standpoint, the Gold price appears to have established a foothold above the $2,720 supply zone. Additionally, the oscillators on the daily chart are showing positive momentum and remain distant from the overbought zone. This situation is advantageous for bullish traders, indicating that the most favorable trajectory for the XAU/USD is upward. Consequently, there is a strong likelihood of continued strength towards the next significant resistance level near the $2,735 horizontal zone, leading towards the $2,746-2,748 range. The momentum may further escalate, potentially challenging the all-time high around the $2,790 level reached in October 2024.

  Conversely, any corrective pullback appears to find substantial support near the $2,700 level. A subsequent decline below the recent swing low, approximately in the $2,689 area, could trigger some technical selling pressure, pushing the Gold price down towards the $2,662-2,660 range. This latter level is expected to serve as a critical juncture; if breached, the XAU/USD could decline to the $2,635 zone, heading towards the $2,622-2,618 confluence, which includes a short-term ascending trend line originating from the November low and the 100-day Exponential Moving Average (EMA).