Gold price advances to $2,750 area, highest since early November
- Gold price scales higher for the third straight day amid the global flight to safety.
- Bets for more rate cuts by the Fed also benefit the non-yielding yellow metal.
- A modest USD bounce could act as a headwind amid the risk-on environment.
Gold price (XAU/USD) builds on the previous day's strong move up and attracts follow-through buying for the third successive day on Wednesday. The momentum lifts the commodity to its highest level since November 1, around the $2,750 area, during the Asian session and is sponsored by safe-haven flows fueled by the uncertainty about US President Donald Trump's trade policies. Apart from this, the recent decline in the US Treasury bond yields, fueled by bets that the Federal Reserve (Fed) will cut rates twice this year, offers additional support to the non-yielding yellow metal.
That said, a generally positive tone around the equity markets, along with a modest US Dollar (USD) recovery from a two-week low, might keep a lid on the Gold price. Furthermore, the growing acceptance that the Fed will pause its rate-cutting cycle later this month and the prospects for a rate hike by the Bank of Japan (BoJ) on Friday might cap the precious metal. Nevertheless, the fundamental backdrop favors bulls, which, along with the overnight breakout through the $2,720 supply zone, suggests that the path of least resistance for the XAU/USD remains to the upside.
Gold price continues to attract haven flows amid Trump’s tariff threats
- Hours after taking the oath, US President Donald Trump said that he intends to impose 25% tariffs on Canada and Mexico, and the target date for tariffs would be as soon as early February.
- Trump's tariff remarks sparked concerns about a fresh wave of global trade war, boosting demand for safe-haven assets and lifting the Gold price to its highest level since early November.
- Signs of abating inflation in the US revived bets that the Federal Reserve may not exclude the possibility of rate cuts by the end of this year, which dragged the US Treasury bond yields lower.
- This, along with the Israel-Hamas ceasefire agreement, and hopes that Trump might relax curbs on Russia in exchange for a deal to end the Ukraine war, remain supportive of the risk-on mood.
- The US Dollar gains some positive traction during the Asian session on Wednesday and moves away from a two-week trough that was retested on Tuesday, which might cap gains for the XAU/USD.
- Investors now look forward to the highly-anticipated Bank of Japan decision on Friday, which could infuse volatility in the financial markets and influence the safe-haven precious metal.
- Apart from this, the flash PMI prints would offer a fresh insight into the global economic health and provide some meaningful impetus to the commodity during the latter half of the week.
Gold price could aim to challenge the all-time peak, around $2,790 area
From a technical perspective, the overnight breakout through the $2,720 supply zone was seen as a fresh trigger for bullish traders. Given that oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone, a subsequent strength beyond the $2,748-2,750 hurdle should pave the way for additional gains. The Gold price might then aim towards challenging the all-time peak, around the $2,790 area touched in October 2024.
On the flip side, any corrective pullback might now be seen as a buying opportunity and remain limited near the $2,725-2,720 region. The next relevant support is pegged near the $2,700-2,690 area, which if broken decisively might prompt aggressive technical selling and drag the Gold price to the $2,660 zone en route to the $2,625 confluence. The latter comprises the 100-day Exponential Moving Average (EMA) and an ascending trend-line extending from the November swing low, which, in turn, should act as a key pivotal point and help determine the next leg of a directional move for the XAU/USD.
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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