Gold prices reached new record highs last week, fueled by rising trade tensions, inflation risks, and uncertainty surrounding Federal Reserve policy. The ongoing U.S.-China trade conflict and hawkish signals from the Fed have driven investors toward gold as a safe-haven asset, seeking protection against economic volatility.
As traders await crucial U.S. inflation data and Federal Reserve Chair Jerome Powell’s testimony this week, the next movement in gold prices hangs in the balance. While the rally has shown signs of overextension, increasing the risk of a short-term correction, the overall sentiment remains bullish.
Gold’s Uptrend Continues, But Risks Mount
Technically, the primary trend for gold remains upward. A move past $2886.86 would signal a continuation of the rally. The nearest support level is at $2790.17, marking the previous high. Despite expectations for continued upward momentum, the market is vulnerable to a potential shift in sentiment or a near-term pullback.
Trade War Escalates, Fuels Inflation Concerns
Gold’s recent surge is largely attributed to renewed U.S.-China trade tensions. President Trump imposed additional tariffs on Chinese imports while temporarily easing tariffs on Mexico and Canada. In retaliation, China imposed its own tariffs, including a 15% levy on U.S. liquefied natural gas.
These trade disruptions have sparked concerns about rising inflation, as increased import costs could push consumer prices higher. With the Federal Reserve already cautious about cutting interest rates, prolonged trade conflicts may delay any easing of monetary policy, further enhancing gold’s appeal as a hedge against inflation.
Fed’s Stance Remains Cautious Amid Inflation Risks
The Federal Reserve maintained its benchmark interest rate at 4.25%-4.50% in its latest meeting, emphasizing that inflationary pressures must subside before any consideration of rate cuts. Some Fed officials have expressed concerns that tariffs could sustain price pressures, potentially keeping interest rates higher for longer than the markets anticipate.
Bond markets have mirrored this uncertainty, with Treasury yields holding steady. The 10-year yield has edged upward, signaling skepticism about imminent rate cuts. Meanwhile, the U.S. dollar has remained strong, limiting gold’s upside potential but not disrupting the broader upward trend.
Physical Demand Struggles as Prices Surge
Although gold continues to see strong demand from investors, physical buying remains sluggish in key consumer markets. In India and China, high prices have deterred potential buyers, with the Perth Mint reporting its lowest gold sales in 10 months. However, central banks, particularly China’s People’s Bank, continue to accumulate gold reserves, which is providing a structural support for gold prices.
Market Focus Shifts to Inflation Data and Powell’s Testimony
This week, U.S. inflation data and Jerome Powell’s congressional testimony will be key drivers of market movement. A stronger-than-expected Consumer Price Index (CPI) or Producer Price Index (PPI) report could reinforce the Fed’s cautious stance, limiting gold’s upside in the near term. Conversely, any signs of disinflation could fuel expectations for earlier rate cuts, potentially triggering another breakout in gold prices.
While gold’s uptrend remains intact, overbought conditions suggest a potential pullback if the data skews hawkish. Key support levels should be closely monitored for opportunities to buy the dip. As inflation figures and Fed rhetoric take center stage, traders should brace for heightened volatility in the coming days.
Conclusion
Gold’s upward trend continues, fueled by global uncertainties and inflation fears. This week, U.S. inflation data and Jerome Powell’s testimony will play a crucial role in shaping its future direction. While the market remains bullish, a short-term pullback is possible if the inflation data is stronger than expected or if the Fed takes a more hawkish stance.
Despite weaker physical demand in major markets, central bank buying, particularly from China, offers support for gold prices. As inflation figures and Fed commentary take center stage, traders should brace for volatility and watch key levels for potential opportunities. The next moves in gold will depend largely on inflation trends and Fed signals.