- Gold price advances further beyond $2,900 and hits a fresh all-time peak on Tuesday.
- Trump’s new tariffs and geopolitical risks continue to boost the safe-haven commodity.
- A modest USD strength prompts some intraday profit-taking around the XAU/USD pair.
Gold price (XAU/USD) stalls its modest intraday pullback from a fresh all-time peak and trades with a positive bias, comfortably above the $2,900 mark during the early European session on Tuesday. US President Donald Trump’s latest tariffs on commodity imports and plans to impose reciprocal tariffs on other countries reignite global trade war fears. This, along with geopolitical risks, continues to underpin demand for the traditional safe-haven precious metal.
Meanwhile, expectations that Trump’s protectionist policies would boost inflation benefit the Gold price, which is seen as a hedge against rising prices. That said, speculations that the Federal Reserve (Fed) will hold interest rates steady in the wake of a still resilient US labor market and inflationary concerns act as a headwind for the non-yielding yellow metal. Apart from this, a modest US Dollar (USD) strength prompts some intraday profit-taking around the XAU/USD.
Gold price bulls retain control amid worries about a global trade war
- US President Donald Trump signed two proclamations on Monday, introducing 25% tariffs on metals and ending all exclusions on steel and aluminum tariffs first imposed during his first tenure from 2016 to 2020.
- Adding to this, Trump told reporters that he would announce reciprocal tariffs on other countries in the next two days, propelling the safe-haven Gold price to a fresh record high during the Asian session on Tuesday.
- Commenting on Middle East tensions, Trump said that Hamas should release all hostages held by midday Saturday, or he would propose canceling the Israel-Hamas ceasefire and “let all hell break loose.”
- The US Dollar advances to over a one-week high amid expectations that Trump’s protectionist policies would reignite inflation in the US and force the Federal Reserve to stick to its hawkish stance and hold rates steady.
- A stronger USD, along with overbought conditions on the daily chart, prompts some profit-taking around the XAU/USD amid some repositioning ahead of Fed Chair Jerome Powell’s congressional testimony.
- Powell’s remarks will be closely scrutinized for cues about the Fed’s rate-cut path, which, in turn, will influence the near-term USD price dynamics and provide a fresh directional impetus to the commodity.
Gold price needs to consolidate amid overbought RSI on the daily chart
From a technical perspective, a slide below the $2,900 mark is likely to find some support near the $2,886-2,882 horizontal zone. Some follow-through selling could drag the Gold price further towards the $2,855-2,852 intermediate support en route to the $2,834 region. Any further decline could be seen as a buying opportunity and is more likely to remain limited near the $2,800 mark. The latter should act as a key pivotal point, which, if broken decisively, should pave the way for deeper losses.
On the flip side, the Asian session swing high, around the $2,842-2,843 region, now seems to act as an immediate strong barrier. Bulls are likely to pause near the said barrier amid the overbought Relative Strength Index (RSI) on the daily chart, which makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for the next leg up. Nevertheless, the broader technical setup suggests that the path of least resistance for the Gold price remains to the upside and supports prospects for an extension of a well-established uptrend witnessed over the past two months or so.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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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