Gold Price Forecast: XAU/USD remains northbound whilst $2,864 support holds
- Gold price regains traction amid Chinese stimulus hopes and buying.
- Trade war fears outweigh dovish Fed bets, boosting US Dollar while capping Gold price.
- Bull Flag breakout on the 4H chart acts as a tailwind for Gold price.
Gold prices seem to have picked up fresh bids above $2,850 at the start of the US inflation week. However, as trade war fears mount, the further upside in Gold price could remain limited by renewed haven demand for the US Dollar (USD).
Gold price looks to capitalize on Trump’s new tariff threats
Risk aversion returned to the fore with trade war fears late Friday, reversing the US Nonfarm Payrolls (NFP) data-led USD decline. The Greenback got a fresh lift from resurgent haven buying, prompting Gold price to recede from a new all-time high of $2,887.
US President Donald Trump stated on Friday that he would unveil reciprocal tariffs on nations that impose taxes on US imports on Tuesday or Wednesday. Risk sentiment took a hit on Trump’s tariff threats and sent the US indices sharply lower even as dovish bets surrounding the Federal Reserve (Fed) easing outlook ramped up on weak January NFP data.
The NFP report showed that the US economy added 143,000 jobs in January after creating 307,000 jobs in December while missing the estimates of a 170,000 increase. The Unemployment Rate declined to 4% from 4.1%, while the Labor Force Participation Rate ticked a tad higher to 62.6% from 62.5%.
Escalating tensions over a potential global trade war, the 47th US President announced on Sunday that he would impose new 25% tariffs on all steel and aluminium imports, exacerbating the pain in the Euro and the commodity-linked Australian Dollar (AUD) and New Zealand Dollar (NZD), in turn infusing fresh buying interest in the go-to safety net – the US Dollar.
Mounting trade fears also remain supportive of the traditional store of value, Gold price. However, the Greenback's strength continues as a headwind to the yellow metal’s upward trajectory. Gold price also capitalizes on the People’s Bank of China’s (PBOC) expansion of its Gold reserves for a third month in January.
“Bullion held by the People’s Bank of China rose by 0.16 million troy ounces last month,” Bloomberg cited the official data released on Friday.
Meanwhile, hopes of more stimulus coming through from China could also keep Gold buyers hopeful, especially after China’s Producer Price Index (PPI) deflation extended into a 28th month in January, with a 2.3% decline. The uptick in China’s Consumer Price Index (CPI) failed to impress markets.
In the day ahead, the USD could extend its recovery momentum if risk-off flows intensify or markets resort to profit-taking on their USD short positions heading into Wednesday's US CPI inflation data release. In both cases, Gold price upside appears limited.
However, the downside in Gold price will likely be cushioned by dovish Fed expectations, China’s stimulus hopes and looming trade war risks.
Gold price technical analysis: Four-hour chart
Gold price confirmed a Bull Cross on the four-hour time frame after it closed above the falling trendline resistance at $2,862 in Friday’s Asian session.
Subsequently, Gold price went onto renew lifetime highs at $2,887 before paring back gains to settle near $2,860.
The bright metal defended the 21-four hourly Simple Moving Average (SMA), now at $2,864.
At the time of writing, Gold price bounces off the 21-day SMA, looking to find acceptance above the $2,880 level.
The next relevant target is aligned at the $2,900 round level, above which the $2,950 psychological level will be tested.
The Relative Strength Index (RSI) points north while above the midline, currently near 61, suggesting more potential for upside.
Alternatively, a sustained break below the 21-four hourly SMA at $2,864 could accelerate the downside toward the 50-four hourly SMA at $2,824.
The line in the sand for Gold buyers is seen at the $2,800 level.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
