GOLD Analysis
Afternoon: Gold Price Surge Amid Economic Concerns and Tariff Proposals
Highlights:
- Gold prices climb to $2799 amid concerns over US tariffs and bond yield drops.
- Tariff proposals by Donald Trump heighten inflation fears and increase demand for safe-haven assets.
- COMEX gold inventories rise by 73.5% to 30.4 million ounces, signaling growing bullish sentiment.
Overview:
Gold prices have reached a new high of $2799, just shy of the $2800 mark, as multiple factors converge to boost bullion's appeal. The latest catalyst is the drop in US Treasury bond yields, which has put downward pressure on yields and increased demand for gold as a safe-haven asset. However, the most significant driver behind the recent surge has been former US President Donald Trump's renewed tariff proposals. These proposals—particularly the 25% tariff on imports from Mexico and Canada—have sparked concerns about inflationary pressures, potential trade wars, and economic instability. This has led to an increased demand for gold, a traditional hedge against both inflation and geopolitical uncertainty.
The rise in gold prices is also accompanied by a significant increase in gold inventories at COMEX-approved warehouses. Since late November, a substantial 12.9 million troy ounces of gold have been delivered to these warehouses, raising total inventories by 73.5%, bringing the total to 30.4 million ounces—the highest level since July 2022. This increase in bullion stockpiles reflects growing investor confidence in gold as a store of value during times of heightened risk.
Tariff Proposals and Safe-Haven Demand: President Trump's tariff proposals, particularly the imposition of a 25% tariff on imports from Mexico and Canada, have the potential to trigger significant economic ramifications. The tariffs are perceived as inflationary due to the added costs they would impose on imports, which could lead to higher prices for goods in the US economy. Additionally, there are concerns that these tariffs could escalate into trade wars, creating uncertainty for global markets. As a result, investors are flocking to gold as a safe-haven asset that typically performs well in inflationary environments and periods of geopolitical instability.
COMEX Inventory Build-Up: The surge in gold inventories at COMEX-approved warehouses indicates a rising demand for physical gold. Since late November, 12.9 million troy ounces of gold have been delivered to these warehouses, marking an increase of 73.5% to a total of 30.4 million ounces. This level of inventory is the highest seen since July 2022, suggesting that investors are increasingly taking physical delivery of gold, possibly as a way to hedge against potential future risks. The build-up in COMEX inventories could signal that investors are positioning themselves for further upside in gold prices, especially given the uncertainty surrounding inflation and geopolitical risks.
Market Outlook and Economic Data: As the gold market responds to these developments, key economic data will play an important role in shaping the outlook for the precious metal. Upcoming reports such as German Retail Sales m/m, German Unemployment Change, the Euro Zone Core PCE Price Index, the Employment Cost Index q/q, and the Chicago PMI from the US will provide critical insights into the global economy’s health. Particularly, the Core PCE Price Index and Employment Cost Index will be closely watched for any signs of inflationary pressures that could further support gold prices.
Action Recommendation: Given the current market conditions and technical analysis, the recommended action is to buy gold around the $2788 level, aiming for a target price of $2815. This is based on the support level at $2775, which provides a solid foundation for the trade. The trade should be protected with a stop loss just below $2775 to manage risk. If the price hits $2825, it may face resistance, so it’s important to monitor price action closely around this level.
This strategy offers an opportunity to capture potential upside while minimizing exposure to downside risk. Gold's recent price action, coupled with economic uncertainty, presents a favorable setup for a tactical buy trade with a clear risk-reward ratio.
Support and Resistance Levels:
