Gold prices (XAU/USD) surged to new record highs during the first half of Wednesday’s European session, fueled by ongoing concerns over the US-China trade war, which has heightened demand for the safe-haven metal. This uptrend is further supported by continued weakness in the US Dollar (USD), as market expectations rise that the Federal Reserve (Fed) will implement additional interest rate cuts in 2025, pushing investors towards non-yielding gold.
Despite a positive risk sentiment, driven by US President Donald Trump’s decision to delay tariffs on Canada and Mexico, gold prices have remained strong. This suggests that, at least in the short term, the path of least resistance for gold remains upward. However, the commodity’s relative strength index (RSI) is nearing overbought levels, which could limit further gains unless fresh market drivers emerge, particularly from upcoming US economic data.
US-China Tensions, Weaker USD Support Gold
The escalating trade tensions between the US and China remain a key driver of gold’s bullish momentum. In retaliation for US tariffs, China imposed targeted tariffs on American goods, stoking fears of a prolonged trade conflict. This development has lifted gold prices to new all-time highs.
Recent data from the US Bureau of Labor Statistics showed that the number of job openings fell to 7.6 million in December, down from 8.09 million the previous month. The slowdown in the US job market has led to speculation that the Fed may continue to lower interest rates, which has kept the USD under pressure and further bolstered gold’s appeal.
Meanwhile, President Trump’s move to delay imposing 25% tariffs on Canada and Mexico for 30 days has provided some relief, alleviating concerns about a broader global trade war. However, this has not significantly dampened the bullish outlook for gold, with investors still seeking refuge in the precious metal.
US Economic Data and Tariff News Could Shape Market Sentiment
Wednesday’s economic data releases, including the ADP private-sector employment report and the ISM Services PMI, are expected to influence the USD and offer short-term trading opportunities for gold. The market’s focus, however, is likely to remain on Friday’s highly anticipated Nonfarm Payrolls (NFP) report, which will offer further insights into the health of the US labor market and potential Federal Reserve actions. Tariff developments will also continue to infuse volatility into the markets.
Technical Outlook
From a technical standpoint, gold’s RSI is showing signs of being slightly overbought, which could warrant caution for bullish traders. Nonetheless, the breakout beyond the $2,800 level suggests that the broader uptrend remains intact, potentially paving the way for further gains from the December 2024 swing low.
If gold experiences a corrective pullback, key support levels appear near $2,830 and $2,800, with further downside likely to find support around the $2,773–$2,772 area, a former resistance zone now turned support. A decisive break below this level, however, could trigger technical selling and lead to deeper losses.
Conclusion
While gold remains supported by ongoing trade tensions and a weaker US Dollar, traders should exercise caution as the market approaches overbought conditions. Short-term fluctuations and economic data, particularly the upcoming US Nonfarm Payrolls report, will play a crucial role in determining gold’s next move. With the potential for further upside, the key support levels and the broader macroeconomic landscape will continue to guide price action in the coming weeks.