Gold Analysis
Afternoon: Gold Surges Past $2,925 Amid Trade War Fears & Inflation Concerns
Highlights:
- Gold rises as Trump’s aggressive trade policies spark economic uncertainty.
- Higher-than-expected inflation raises doubts over Fed rate cuts, boosting gold.
- Weaker US dollar enhances gold’s appeal, strengthening global demand.
Overview:
Gold prices surged past $2,925 per ounce, fueled by rising economic uncertainty and escalating trade tensions following President Donald Trump’s announcement of new reciprocal tariffs. The proposed tariffs would apply to countries that impose duties on US exports, intensifying fears of a global trade war. This latest move adds to an already contentious trade environment, following Trump's previous imposition of a 25% tariff on steel and aluminum imports, as well as existing 10% duties on Chinese goods and 25% on imports from Canada and Mexico—though the latter are currently on hold.
The increased tariffs are raising concerns about potential economic repercussions, as protectionist policies could disrupt global trade flows, dampen business investment, and increase inflationary pressures. As a result, investors have shifted to safe-haven assets like gold, which historically performs well during periods of economic and geopolitical instability.
Adding to market uncertainty, the latest US Producer Price Index (PPI) data showed a higher-than-expected inflation increase in January. Rising input costs suggest that inflationary pressures remain persistent, raising concerns that the Federal Reserve might delay its anticipated interest rate cuts. Despite previous signals from Fed Chair Jerome Powell about potential rate reductions in 2025, the unexpected rise in inflation has cast doubt on the Fed’s easing plans. Higher inflation typically supports gold prices, as the metal is seen as a hedge against declining purchasing power.
The US dollar weakened, making gold more attractive to overseas buyers, further contributing to the rally. A weaker dollar generally enhances gold's appeal, as it reduces the opportunity cost of holding the non-yielding metal.
Macroeconomic Developments Affecting Gold Prices
- Global Trade Tensions: The latest tariff threats from the Trump administration have intensified economic uncertainty, with fears of retaliatory measures from other countries. This has led investors to flock to gold as a safe-haven asset.
- Inflationary Pressures: The higher-than-expected PPI data suggests that inflation is not cooling as expected, potentially delaying the Fed’s ability to cut rates. Higher inflation typically supports gold, as it is often used as a hedge against rising prices.
- Monetary Policy Uncertainty: With inflationary pressures persisting, the Federal Reserve might be forced to maintain a more restrictive monetary policy, limiting expectations for rate cuts in 2025. Higher interest rates typically weigh on gold, but continued uncertainty keeps investor demand high.
- Weaker US Dollar: A declining dollar makes gold more affordable for international investors, leading to increased demand and higher prices.
Key Economic Data to Watch
Upcoming macroeconomic indicators that could impact gold prices include:
- United States: Core Retail Sales m/m, Retail Sales m/m, Capacity Utilization Rate
Technical Analysis & Trade Strategy
- Support Levels: $2,900
- Resistance Levels: $2,960
- Trade Recommendation: Buy around $2,920, target $2,950, stop loss below $2,900
Support and Resistance Levels:
