Gold price remains depressed below $2,900; downside potential seems limited
- Gold price attracts some sellers for the second straight day amid a modest USD uptick.
- The overnight hawkish remarks from Fed Chair Powell revived USD demand.
- Trade war fears should help limit any corrective slide for the safe-haven XAU/USD pair.
Gold price (XAU/USD) trades with a mild negative bias for the second straight day, though it lacks follow-through selling and holds steady just below the $2,900 mark during the Asian session on Wednesday. The US Dollar (USD) ticked higher in the wake of the Federal Reserve (Fed) Chair Jerome Powell's hawkish remarks on Tuesday, which, in turn, is seen as a key factor undermining the commodity. That said, concerns about the potential economic fallout from US President Donald Trump's trade tariffs and global trade war fears continue to act as a tailwind for the safe-haven bullion.
Traders also seem reluctant to place aggressive directional bets and opt to move to the sidelines ahead of the release of the latest US consumer inflation figures, due later this Wednesday. The crucial data will play a key role in influencing market expectations about the Fed's rate-cut path, which, in turn, will drive the USD demand and determine the next leg of a directional move for the Gold price. Nevertheless, Trump-related anxieties warrant some caution before positioning for an extension of the previous day's sharp pullback from the $2,942-2,943 area, or a fresh all-time peak.
Gold price is pressured by a modest USD strength; trade war fears should help limit losses
- Federal Reserve Chair Jerome Powell, in remarks before the Senate Banking Committee on Tuesday, called the economy strong overall with a solid labor market and said that inflation is easing but still above the 2% goal.
- This comes on top of Friday's mostly upbeat US employment details and expectations that US President Donald Trump's policies would reignite inflationary pressure, which could allow the Fed to stick to its hawkish stance.
- The US Dollar gains some positive traction in the wake of rising bets that the Fed would hold interest rates steady in the foreseeable future and exert pressure on the Gold price for the second consecutive day on Wednesday.
- US President Donald Trump signed executive orders to impose 25% tariffs on steel and aluminum imports into the US and promised broader reciprocal tariffs to match the levies other governments charge on US products.
- Trump also signaled he would look at imposing additional tariffs on automobiles, pharmaceuticals, and computer chips, which fueled worries about a global trade war and acts as a tailwind for the safe-haven precious metal.
- Investors now look forward to the release of the latest US consumer inflation figures for fresh cues about the Fed's rate-cut path and determining the near-term trajectory for the USD and the non-yielding yellow metal.
- The headline US Consumer Price Index is seen rising 2.9% YoY in January and the core CPI (excluding food and energy prices) coming in at a 3.1% YoY rate, slightly lower than the 3.2% recorded in the previous month.
Gold price technical setup supports prospects for the emergence of dip-buyers at lower levels
From a technical perspective, the overnight Relative Strength Index (RSI) on the daily chart turns out to be a key factor that prompts some profit-taking around the Gold price. That said, any further slide might still be seen as a buying opportunity and remain limited near the $2,855-2,852 region. This is followed by support near the $2,834 area, which if broken could drag the XAU/USD further towards the $2,800 mark.
On the flip side, bulls might now wait for a move back above the $2,910 immediate hurdle before placing fresh bets. The subsequent move up could lift the Gold price back towards the $2,942-2,943 region, or the all-time peak touched on Tuesday. Some follow-through buying would set the stage for an extension of the recent well-established uptrend witnessed over the past two months or so.
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.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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