Amidst the flight to safety following Trump's tariff remarks, the price of gold acquires significant positive momentum.

The yellow metal is further supported by bets on additional Fed rate reduction, which also affect US bond yields.

Positive risk sentiment and a small USD recovery limit future gain in the commodity.

 

After reaching its highest level since November 6 during Tuesday's early European session, the price of gold (XAU/USD) gradually declines and is currently trading just below the $2,725 region, up more than 0.50% for the day. Amid fears that US President Donald Trump's protectionist measures would increase inflation and compel the Federal Reserve (Fed) to maintain its hawkish posture, the US dollar (USD) made a respectable recovery from a two-week low reached on Monday. This operates as a headwind for the safe-haven precious metal, as does the generally upbeat mood surrounding the equity markets.

 

Trump's tariff comments, meanwhile, raise fears of a new round of international trade conflict. Additionally, any significant corrective downturn for the price of non-yielding gold should be constrained by predictions that the Fed would lower interest rates twice this year, which has been a major contributing reason to the recent strong decline in US Treasury bond yields. Still, for the second day in a row, the XAU/USD pair maintains its upward bias. Furthermore, the basic background indicates that, in the absence of any pertinent US economic data, the commodity's path of least resistance is still upward.

 

With rising USD demand and a positive risk tone, the price of gold pares some of its intraday gains.

 

On Tuesday, US President Donald Trump announced his intention to impose 25% tariffs on Canada and Mexico, with the goal of implementing the penalties as early as early February. Trump further fueled demand for the safe-haven price of gold by threatening to impose taxes on China if it does not accept a TikTok deal.

Last week's releases of the US Producer Price Index (PPI) and Consumer Price Index (CPI) suggested that inflation was slowing down. The yield on the benchmark 10-year US government bond drops to a level that hasn't been seen in almost three weeks, indicating that the Fed may not rule out rate reduction before the end of this year.

 

Amid fears that Trump's protectionist measures could increase inflation and pressure the Federal Reserve to maintain its hawkish posture, the US dollar (USD) recovered its overnight decline to a two-week low. This could therefore limit any more increases for the yellow metal that doesn't yield.

The optimistic risk tone is still supported by the Israel-Hamas ceasefire agreement and expectations that Trump may loosen restrictions on Russia in return for an agreement to end the war in Ukraine. In the absence of any pertinent US economic data, this could further discourage bulls from making new wagers around the XAU/USD.

 

The important Bank of Japan policy meeting on Friday, January 23–24, will continue to dominate market attention. In addition, volatility around the commodity should increase in the second half of the week due to the release of the flash PMI prints, which will be analyzed for new information about the state of the world economy.

 The price of gold is still on track to test the next significant barrier close to the $2,746-2,748 zone


Technically speaking, it appears that the price of gold has finally gained traction above the $2,720 supply zone. Additionally, the daily chart's oscillators have been improving and are still outside of the overbought area. As a result, bullish traders benefit and the XAU/USD relationship appears to have an upward path of least resistance. As a result, it appears very likely that there will be some follow-through strength towards the next significant obstacle close to the $2,735 horizontal zone, on the way to the $2,746-2,748 region. The trend may continue in the direction of testing the record high, which was reached in October 2024 at $2,790.

 

Conversely, any corrective pullback currently appears to find strong support close to $2,700. Technical selling may be triggered by a second decline below the overnight swing low, which is located around the $2,689 region. This would push the price of gold lower towards the $2,662-2,660 zone. A short-term ascending trend-line that extends from the November low and the 100-day Exponential Moving Average (EMA) should serve as a critical landmark, below which the XAU/USD might drop to the $2,635 zone on its way to the $2,622-2,618 confluence.