Gold prices (XAU/USD) eased slightly after reaching its highest level since November 6 during the early European session on Tuesday. As of the latest update, gold is trading just below the $2,725 mark, still up over 0.50% for the day.
US Dollar Strength and Risk-On Sentiment Weigh on Gold
The US Dollar (USD) staged a recovery from a two-week low touched on Monday, driven by expectations that US President Donald Trump’s protectionist policies might increase inflation, pushing the Federal Reserve (Fed) to maintain a hawkish stance. This, combined with a generally positive tone in the equity markets, has acted as a headwind for gold, a safe-haven asset.
Trump’s tariff remarks, especially regarding a 25% tariff on Canada and Mexico, along with threats to impose tariffs on China over the TikTok deal, have sparked concerns about a new wave of global trade tension. These remarks have contributed to renewed demand for the safe-haven precious metal.
Inflation Concerns and Interest Rate Expectations
US inflation data, including last week’s Producer Price Index (PPI) and Consumer Price Index (CPI), showed signs of easing, leading markets to believe the Fed might consider interest rate cuts by the end of this year. This has contributed to a decline in US Treasury bond yields, supporting gold prices.
Gold Technical Outlook
From a technical perspective, gold has found support above the $2,720 zone, which suggests a potential bullish trend. If the momentum continues, gold could target the next resistance levels near $2,735, $2,746, and $2,748, with the all-time high of $2,790 reached in October 2024 remaining a key focus.
On the downside, gold could find support near $2,700, and a fall below $2,689 could trigger some technical selling, pushing gold towards the $2,662-2,660 range. A further decline below this level could take gold to $2,635, and ultimately toward the $2,622-2,618 region, which is supported by an ascending trend-line and the 100-day Exponential Moving Average (EMA).
Conclusion
Despite a slight retreat from recent highs, gold maintains a positive bias, supported by expectations of lower interest rates, easing inflation, and geopolitical tensions. Traders will be watching key technical levels and any potential shifts in US economic data, particularly around the Bank of Japan’s policy meeting and global economic indicators later in the week.