Gold price refreshes all-time high on risk aversion
- Gold price is poised to reach $2,900 amid an uncertain environment triggered by Trump’s policies.
- US businesses in the services industry are cooling, indicating an ongoing slowdown.
- Fed officials turned unease on Trump tariffs, putting inflation ahead of employment.
Gold price is set to extend its gains, rising more than 0.90% on Wednesday, sponsored by US Dollar weakness and falling US Treasury bond yields. The escalation of the China-US trade war keeps investors flocking to Gold’s safety appeal, and the XAU/USD trades near $2,870 as bulls target $2,900.
US President Donald Trump's rhetoric and policies continued to drive investors toward the golden metal, which is in unchartered territory. Traders are eyeing the $2,900 mark. Economic data revealed that the labor market remains solid after January’s ADP Employment Change report, which showed that private companies hired more people than foreseen.
However, not everything was positive on the data front. Business activity revealed by S&P Global and the Institute for Supply Management (ISM) showed that the services sector is cooling.
In the meantime, Federal Reserve (Fed) officials had crossed the wires and shown that they were uncertain about the impact of tariffs on inflation. Yet Chicago’s Fed President Austan Goolsbee said that ignoring tariffs' potential impact would be a mistake.
“If we see inflation rising or progress stalling in 2025, the Fed will be in the difficult position of trying to figure out if the inflation is coming from overheating or if it's coming from tariffs,” Goolsbee said.
Given the backdrop that Trump delayed 25% tariffs on Mexico and Canada for 30 days but levied 10% duties on China, uncertainty has kept investors uneasy about the potential disruption to global trade. Hence, they continued to seek the safety of the precious metals and ditched the Greenback.
Daily digest market movers: Gold remains underpinned by falling US yields
- The US Dollar Index (DXY), which tracks the buck’s performance versus a basket of six currencies, drops 0.38% and sits at 107.58 after hitting a three-week high at 109.88.
- The US 10-year Treasury bond yield plunges over nine basis points, down to 4.244%.
- US real yields, which correlate inversely to Bullion prices, dropped three basis points from 2.10% to 2.07%, a tailwind for XAU/USD.
- In January, the US ADP National Employment Change reported an increase in private sector jobs, rising from 176K to 183K and surpassing estimates of 150K.
- Concurrently, the ISM Services PMI for January registered at 52.9, slightly above forecasts of 52.8, although it decreased from December’s 54.0. Additionally, the S&P Global Services PMI decreased from 56.8 to 52.9 for the same period, still outperforming the anticipated 52.8.
- Money market fed funds rate futures are pricing in 52 basis points (bps) of easing by the Federal Reserve in 2025.
XAU/USD technical outlook: Gold prices set to challenge $2,900
After printing a new all-time high of $2,882, the yellow metal is set to challenge $2,890 ahead of the psychological $2,900 figure. Momentum remains bullish, and although the Relative Strength Index (RSI) has pushed well into overbought territory, it hasn’t reached the most extreme level above 80, which could pave the way for a mean-reversion trade.
On the other hand, if Gold tumbles below the $2,800 figure, the first support would be the January 27 swing low of $2,730, followed by $2,700.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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