Gold props up gains after tit-for-tat trade war emerges
- Gold rallied over 1% on Monday after US President Trump said it was too late for China, Mexico and Canada to avoid tariffs hitting this Tuesday.
- Canada will impose 25% retaliatory tariffs from Tuesday, while China is set to slap 15% levies on US agricultural goods from March 10.
- US yields nudge lower again on Tuesday, hitting a near 5-month low at 4.11%.
Gold’s price (XAU/USD) edges higher and trades around $2,910 at the time of writing on Tuesday after surging over 1% the prior day. The recent upsurge came in after United States (US) President Donald Trump confirmed on Monday that tariffs for Canada, Mexico and China were underway. Markets were still doubting on Monday if President Trump would still allow an extension to tariffs implementation based on the efforts the countries were making to meet the demands of the Trump administration. Little too late, it seemed, with President Trump going ahead with imposing the committed tariffs starting on Tuesday.
Meanwhile, Canada and China have already pushed back on imposing unilateral tariffs from the US. A statement released by Canadian prime minister Justin Trudeau’s office confirmed that Canada will impose retaliatory tariffs on US imports from Tuesday if US tariffs go into effect. “Canada will start with 25% tariffs on US imports worth C$30 billion from Tuesday,” read the statement, while tariffs on other C$125 billion of products will come into effect in 21 days.
On the other hand, China’s Commerce Ministry announced early Tuesday that it would slap additional tariffs of up to 15% on imports of key farm products, including chicken, pork, soy and beef from the US. The Ministry said that the tariffs announced will take effect from March 10..
Amidst this tit-for-tat trade war, US yields are rolling off again. The US 10-year benchmark hit 4.11% on the downside in early Asian trading on Tuesday. A nearly five-month low, going back to levels not seen since mid-October.
Daily digest market movers: Safe haven bid
- On the geopolitical front, a senior defense official said the US was pausing all military aid to Ukraine, Bloomberg reports.
- After Monday’s turn of events, the CME Fedwatch tool is seeing the market's cry for a Federal Reserve (Fed) interest rate cut by June getting even bigger. The odds currently stand at 85.6%, with a minor 14.4% chance for rates to remain unchanged.
- A string of recent US data showing resurgent inflation and slowing activity is stoking fears the world’s biggest economy could be heading toward a period of stagflation, Reuters reports.
Technical Analysis: A very long road ahead
Bullion extends its Monday’s gains at the start of the European trading session on Tuesday. Ranges have become tighter for the daily Pivot Point levels, confirming the current indecision among investors after last week’s decline. Watch out for a continuation in any direction. However, uncertainty about a tit-for-tat trade war will see Gold being supported.
The daily Pivot Point at $2,879 and the daily R1 resistance at $2,903 are currently providing support to bounce off from and attempt to push Bullion higher. In case Gold has enough oomph to continue higher, the daily R2 resistance at $2,917 will possibly be the final cap on Tuesday ahead of the all-time high of $2,956 reached on February 24.
On the downside, apart from the abovementioned Pivot Point and the R1 resistance levels, the S1 support at $2,866 converges with Thursday’s low. That will be the vital support for this Tuesday. If Bullion bulls want to avoid another leg lower, that level must hold. Further down, the daily S2 support at $2,842 should be able to catch any additional downside pressure.
XAU/USD: Daily Chart
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.
Artigos Recomendados
