Gold prices surged to a record high of $2,845 late Tuesday during the North American session, driven by a sharp decline in the US Dollar, which was pressured by falling US Treasury bond yields. The ongoing US-China trade tensions have prompted investors to seek the safe-haven appeal of gold, with the precious metal trading at $2,843, up more than 1%.
Geopolitical Tensions Push Gold Higher
Geopolitical factors continue to influence gold’s price movement. Despite US President Donald Trump’s decision to delay tariffs on Mexico and Canada, the 10% tariffs imposed on Chinese goods led to retaliatory measures from China. The country responded by applying tariffs on various US imports, including coal, Liquefied Natural Gas (LNG), crude oil, and electric trucks, along with controls on key metal exports critical for electronics.
The intensifying US-China trade conflict has weighed heavily on the US Dollar, with the US Dollar Index (DXY) dropping 0.43%, falling below the 108.00 threshold. As a result, gold’s rally is expected to continue, with $2,850 as an initial target, potentially heading toward the $2,900 mark.
Federal Reserve’s Stance Could Impact Gold’s Rally
Despite the strong bullish momentum in gold, the Federal Reserve’s stance on monetary policy could cap further gains. San Francisco Fed President Mary Daly stated that the Fed’s work on inflation is not finished, adding that the US economy is strong enough for the central bank to assess the impact of tariffs and wait before making further rate cuts.
Bullion Prices Supported by Declining US Yields
The decline in US Treasury yields has further supported gold prices. US real yields, as measured by the 10-year Treasury Inflation-Protected Securities (TIPS), dropped nearly six basis points (bps), from 2.13% to 2.072%. The US 10-year Treasury bond yield also decreased by four bps, settling at 4.51%.
In addition, the latest Job Openings and Labor Turnover Survey (JOLTS) showed a reduction in job openings, with the number falling to 7.6 million in December from 8.16 million in November, reinforcing expectations of continued weakness in the labor market. US Factory Orders also fell by 0.9% in December, missing forecasts of a 0.7% contraction.
Gold Technical Outlook
Technically, gold’s uptrend remains strong, supported by a bullish Relative Strength Index (RSI), which, although indicating overbought conditions, suggests that the current momentum could push the RSI from 70 to 80. With the RSI currently at 74, bullish sentiment remains intact, and traders are optimistic about further price increases.
The next resistance level for gold is $2,850, with the 161.8% Fibonacci (Fib) extension at $2,889, followed by the $2,900 mark on the 4-hour chart. On the downside, if sellers manage to break the 50-period Simple Moving Average (SMA) at $2,780, support could be found at the January 27 swing low of $2,730, followed by $2,700.
Conclusion
Gold prices are being buoyed by a combination of US Dollar weakness and escalating US-China trade tensions. The precious metal is on track to hit new highs, although the Federal Reserve’s potential hawkish stance could limit further advances. As geopolitical risks persist, investors are likely to continue seeking the safety of gold, with $2,850 and $2,900 as key levels to watch in the near term.