- Gold price continues to attract safe-haven flows amid renewed US-China trade war fears.
- Fed rate cut bets undermine the USD and further lend support to the XAU/USD pair.
- A slightly overbought RSI on the daily chart warrants some caution for bullish traders.
Gold price (XAU/USD) continues scaling higher through the Asian session on Wednesday and advances to a fresh all-time peak, around the $2,858 region in the last hour. Concerns about the economic fallout from US President Donald Trump’s trade tariffs continue to underpin demand for the safe-haven bullion. Furthermore, expectations that the Federal Reserve (Fed) would maintain its easing cycle, bolstered by signs of slowing momentum in the US labor market, contribute to driving flows towards the non-yielding yellow metal.
Meanwhile, the US Dollar (USD) languishes near the weekly low amid the prospects for further policy easing by the Fed and turns out to be another factor lending additional support to the Gold prices. That said, Trump’s decision to delay tariffs against Canada and Mexico remains supportive of the risk-on mood, which could cap gains for the XAU/USD amid slightly overbought conditions on the daily chart. This makes it prudent to wait for a near-term consolidation or a modest pullback before positioning for an extension of the recent upward trajectory. Traders now look to the US ADP report on private-sector employment and the US ISM Services PMI for some impetus.
Gold price bulls retain control amid US-China trade tensions, despite positive risk tone
- China retaliated to US President Donald Trump’s new duties and imposed targeted tariffs on US imports, fueling trade war fears between the world’s top two economies and lifting the safe-haven Gold price to a fresh record high on Wednesday.
- The Job Openings and Labor Turnover Survey (JOLTS) published by the US Bureau of Labor Statistics on Tuesday showed that the number of job openings on the last business day of December stood at 7.6 million, down from 8.09 million previous.
- The data pointed to a slowdown in the job market, which could allow the Federal Reserve to cut rates further. This keeps the US Dollar bulls on the defensive near the weekly low and turns out to be another factor that benefits the XAU/USD pair.
- Trump offered concessions to Canada and Mexico by delaying the 25% trade tariffs for 30 days, fueling hopes that a global trade war could be averted, though it does little to dent the bullish sentiment around the safe-haven precious metal.
- Wednesday’s US economic docket features the release of the ADP report on private-sector employment and ISM Services PMI. The data should influence the USD and produce short-term trading opportunities around the commodity.
- The focus, however, will remain on the closely-watched US monthly employment detail – popularly known as the Nonfarm Payrolls (NFP) report on Friday. Apart from this, tariff headlines should infuse volatility in the markets.
Gold price needs to consolidate its recent gains amid overbought conditions on the daily chart
From a technical perspective, the Relative Strength Index (RSI) on hourly and daily charts is flashing slightly overbought conditions, warranting some caution for bullish traders. That said, the recent breakout momentum beyond the $2,800 mark suggests that the path of least resistance for the Gold price remains to the upside. This, in turn, supports prospects for an extension of the recent well-established uptrend from the December 2024 swing low.
In the meantime, any corrective slide now seems to find some support near the $2,830 area ahead of the $2,800 mark. A further decline could be seen as a buying opportunity and is more likely to remain limited near the $2,773-2,772 horizontal resistance breakpoint, now turned support. A convincing break below the latter, however, might prompt some technical selling and pave the way for deeper losses.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
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