31 Jan 2025

Gold prices have entered a phase of bullish consolidation following the establishment of a new all-time high on Friday.

The gains for the XAU/USD pair are being limited by the Federal Reserve's hawkish stance and the resurgence of US bond yields.

Market participants are now anticipating the upcoming release of the US PCE Price Index for additional momentum.

Gold prices (XAU/USD) have reached the $2,800 level, marking a new all-time high during the early hours of the European trading session. This movement indicates a strong potential for the continuation of the upward trend that has been observed over the past month. The demand for this safe-haven asset is being supported by US President Donald Trump's proposed trade tariffs and ongoing geopolitical tensions. Additionally, the anticipation that Trump's protectionist measures may lead to a resurgence of inflation further enhances gold's appeal as a safeguard against increasing price pressures.

The combination of a weaker US Dollar (USD) and other factors enhances the likelihood of a short-term increase in Gold prices. However, the Federal Reserve's (Fed) cautious stance on Wednesday, coupled with a slight rebound in US Treasury bond yields, is causing traders to hesitate in making new investments in the non-yielding yellow metal. Additionally, traders appear to be adopting a wait-and-see approach as they anticipate the upcoming release of the US Personal Consumption Expenditure (PCE) Price Index, which is scheduled for later in the North American session.

US President Donald Trump reaffirmed his intention to impose 25% tariffs on Mexico and Canada, the two leading trade partners of the United States, and cautioned that 100% tariffs could be enacted if BRICS attempts to supplant the US Dollar.

The Joint Staff Office (JSO) of Japan reported that two Russian Tu-95 bombers, accompanied by two Russian fighter jets, conducted an eight-hour mission over the Sea of Okhotsk and the Sea of Japan on Thursday.

The initial estimate released by the US Bureau of Economic Analysis (BEA) on Thursday indicated that the Gross Domestic Product (GDP) experienced an annualized growth rate of 2.3% during the October to December period.

This figure represents a significant deceleration from the 3.1% growth observed in the preceding quarter and fell short of the market forecast of 2.6%, which in turn heightened demand for safe-haven Gold.

Investors continue to express concerns that Trump's protectionist measures may trigger renewed inflationary pressures. Furthermore, the Federal Reserve's hawkish approach has provided a slight increase in US Treasury bond yields.

The US central bank opted to maintain its current policy following the conclusion of a two-day meetingmeeting on Wednesday and signaled that there would be no rush to lower borrowing costs until inflation and jobs data made it appropriate. The US Dollar preserves its weekly recovery gains from over a one-month low, which, along with a generally positive tone around the equity markets, keeps a lid on gains for the precious metal.Traders now look to the release of the US Personal Consumption Expenditure (PCE) Price Index – the Fed's preferred inflation gauge – for some impetus later during the North American session.

From a technical standpoint, maintaining strength and acceptance above the $2,800 level will be regarded as a new catalyst for bullish sentiment. However, the daily Relative Strength Index (RSI) is approaching the overbought territory, suggesting that it may be wise to await a period of consolidation or a slight pullback before initiating new bullish positions in the Gold market, particularly in light of the significant upward movement observed over the past month.

In the meantime, any potential corrective decline is expected to encounter substantial support, likely remaining confined within the $2,773-2,772 horizontal range. Following this, the $2,758-2,756 area serves as another support level; a breach of this zone could trigger some long-unwinding, potentially pushing the Gold price further down towards the $2,740 region, ultimately leading to the critical support levels around $2,725-2,720. A decisive break below this latter support could pave the way for considerable downward movement in the near future.