Gold prices experienced a slight dip during the North American session on Tuesday, falling 0.18% after reaching a record high of $2,942 earlier in the day. The price surge, spurred by escalating trade war tensions following President Donald Trump’s new tariffs, retreated as traders took profits ahead of key economic updates. As of writing, XAU/USD is trading near $2,900.
The narrative in financial markets remained consistent following Trump’s decision to impose 25% tariffs on steel and aluminum imports into the US. Initially, the tariffs boosted gold prices as a safe-haven asset, but a subsequent pullback occurred as traders anticipated Federal Reserve Chairman Jerome Powell’s testimony before the Senate.
During his testimony, Powell reassured markets that the Fed was in no rush to cut interest rates, citing the strong economy and persistent inflation above the 2% target. He also downplayed fears of an imminent recession, further stabilizing market sentiment.
Economic data also played a role in market movements, with the NFIB Small Business Optimism Index declining to 102.8 in January, down from 105.1 in December—the highest level since October 2018.
This week, market attention will turn to US inflation data, both on the consumer and producer sides, as well as additional speeches from Federal Reserve officials.
Market Movers and Key Data:
US 10-year Treasury bond yields increased by 3 basis points, rising to 4.531%.
Real US yields, which have an inverse relationship with gold, gained 1 basis point, sitting at 2.079%.
The World Gold Council reported that central banks continued their gold buying spree, purchasing over 1,000 tons for the third consecutive year in 2024, with a notable 54% year-on-year surge following Trump’s electoral victory.
Despite rising inflation expectations, the New York Fed’s consumer survey showed inflation expectations remain anchored at 3% for the near term, with a slight increase in five-year expectations to 3%.
Fed Policy and Economic Outlook: Cleveland Fed President Beth Hammack indicated a preference for holding interest rates steady for an extended period, emphasizing the Fed’s need to assess economic conditions. She characterized current monetary policy as “modestly restrictive” amid ongoing inflation uncertainty. Recent mixed employment data, coupled with a slight dip in the unemployment rate, suggested strength in the labor market, further reducing the likelihood of a rate cut in the near term.
A Reuters poll indicated that the Fed is unlikely to cut rates until the next quarter, with money market futures pricing in a modest 38.5 basis points of easing by 2025.
Technical Outlook for XAU/USD: Gold prices are showing a slight retracement after hitting the all-time high of $2,942, with the trend still tilted to the upside. The Relative Strength Index (RSI) indicates that while bullish momentum persists, the market is entering overbought territory, opening the door for a potential pullback.
If gold falls below the $2,900 mark, the first support level would be the psychological $2,850. Further support lies at the October 31 cycle high of $2,790, followed by January’s 27 swing low of $2,730. On the upside, if prices break above the record high, resistance levels to watch include $2,950, followed by the key psychological level of $3,000.
