Gold (XAU/USD) climbed to the $2,880 mark during Monday’s Asian session, driven by investor reaction to U.S. President Donald Trump’s plan to impose a 25% tariff on all steel and aluminum imports. The move has sparked concerns about a potential global trade war, increasing demand for the safe-haven metal. Additionally, expectations that Trump’s protectionist stance could fuel inflation further bolster gold’s appeal as a hedge against rising prices.
Market Dynamics and U.S. Economic Data
Despite gold’s rally, gains could face headwinds due to strong U.S. economic indicators. The upbeat U.S. employment data released on Friday, coupled with inflationary concerns, might limit the Federal Reserve’s scope for further rate cuts. This has provided the U.S. dollar (USD) with some support at the start of the week, potentially capping gold’s upside. Furthermore, overbought conditions on the daily chart may discourage traders from making fresh bullish bets in the absence of key U.S. economic data.
Trade War Concerns Fuel Gold’s Safe-Haven Appeal
Trump’s announcement of new tariffs, along with his plans for reciprocal tariffs matching those of other nations, has reinforced market uncertainty, pushing investors toward gold. Meanwhile, geopolitical tensions persist, with Russian Deputy Foreign Minister Mikhail Galuzin stating that no meaningful proposals for peace talks on Ukraine have emerged. Additionally, U.S. Vice President JD Vance is expected to visit Germany this week to outline Washington’s latest stance on the conflict.
Investors remain wary that Trump’s trade policies could further drive inflation. This concern, combined with last week’s strong Nonfarm Payrolls (NFP) report, may constrain the Federal Reserve’s ability to cut rates, limiting gold’s upside. January’s NFP data showed the U.S. economy added 143,000 jobs—below the expected 170,000—but the unemployment rate unexpectedly dipped to 4.0%, offsetting the lower job growth.
Fed Officials Signal Uncertainty Over Policy Direction
Minneapolis Fed President Neel Kashkari indicated on Friday that he would support additional rate cuts if inflation data remains favorable and the labor market stays strong. Chicago Fed President Austan Goolsbee noted that inconsistent U.S. policy measures have heightened economic uncertainty, complicating inflation forecasts. Meanwhile, Fed Governor Adriana Kugler acknowledged that while economic activity remains robust, progress toward the 2% inflation target has been uneven.
Technical Outlook: Overbought RSI Warrants Caution
From a technical standpoint, the daily chart’s Relative Strength Index (RSI) suggests overbought conditions, urging caution among bullish traders. A near-term consolidation or modest pullback could precede further gains. Any continued rally may encounter resistance near the $2,886-$2,887 region—just shy of the all-time high—before testing the psychological $2,900 level.
On the downside, immediate support lies between $2,855 and $2,854, offering potential buying opportunities. A break below this level could lead to further declines toward $2,834, with additional support at $2,815-$2,814, and a critical threshold at $2,800.
Key Events Ahead
Traders now turn their attention to Federal Reserve Chair Jerome Powell’s upcoming congressional testimony and U.S. inflation data, which could provide fresh momentum for gold prices. Additionally, broader market sentiment regarding Trump’s trade policies and geopolitical developments will play a pivotal role in shaping the commodity’s next moves.
