Gold (XAU/USD) extended its rally to around $2,865 in early Asian trading on Monday, as escalating trade tensions and central bank demand fueled investor interest in the safe-haven metal.
Trade War Concerns Drive Safe-Haven Demand
Gold prices edged higher after U.S. President Donald Trump announced plans to introduce reciprocal tariffs on multiple countries, with implementation expected as early as Tuesday or Wednesday. The move has intensified concerns over a global trade war, prompting investors to turn to gold as a hedge against economic uncertainty.
“Central focus of the gold market continues to be the uncertainty regarding the Trump tariff policies,” said David Meger, director of metals trading at High Ridge Futures. Market participants will closely monitor developments on trade negotiations and any potential retaliatory measures from affected nations.
China Boosts Gold Reserves for Third Straight Month
In a further boost to gold prices, the People’s Bank of China (PBOC) increased its gold reserves for a third consecutive month in January. China’s holdings rose to 73.45 million fine troy ounces, up from 73.29 million in December, reaffirming its status as the world’s largest gold consumer.
“The PBOC will likely continue to diversify its reserves in the longer term, given the rising geopolitical uncertainty,” noted David Qu, an economist at Bloomberg Economics. China’s ongoing accumulation of gold underscores a strategic shift to reduce reliance on the U.S. dollar amid global financial instability.
Strong U.S. Labor Market Could Limit Fed Rate Cuts
Despite gold’s bullish momentum, a resilient U.S. labor market could curb expectations for Federal Reserve interest rate cuts, potentially capping further gains for the precious metal. The U.S. economy added 143,000 jobs in January—below the 170,000 forecast—but the unemployment rate unexpectedly declined to 4.0% from 4.1%.
With traders now anticipating only one Fed rate cut this year, a stronger U.S. dollar (USD) could put pressure on gold, which is priced in USD. A rising dollar makes gold more expensive for foreign investors, potentially limiting upside momentum.
Market Outlook
As investors assess the impact of Trump’s trade policies and the Federal Reserve’s next moves, gold remains well-supported by global economic uncertainty and central bank demand. Traders will now turn their attention to upcoming U.S. inflation data and Federal Reserve Chair Jerome Powell’s testimony for further clues on monetary policy direction.
