- Gold price edges higher in Friday’s early European session.
- Trade war fears and lower US bond yields support the precious metal.
- Investors brace for the US January Retail Sales data, which is due later on Friday.
Gold price (XAU/USD) extends its upside during the early European trading hours on Friday. The growing concerns about US President Donald Trump's tariff plans provide some support to the precious metal. Additionally, a decline in US bond yields across the curve contributes to the yellow metal’s upside.
However, the expectation that the US Federal Reserve (Fed) will stick to its hawkish stance and hold the interest rate higher for longer could drag the non-yielding yellow metal lower. Traders will keep an eye on the release of US Retail Sales for January, which is due later on Friday.
Gold price drifts higher amid fears of a global trade war
- Trump unveiled a roadmap on Thursday for charging reciprocal tariffs against every country that imposes duties on US imports.
- However, commerce and economics officials need to study reciprocal tariffs against countries that place tariffs on US goods, and it will not be due until April 1.
- The US Producer Price Index (PPI) rose 3.5% YoY in January, followed by the 3.3% increase seen in December, according to the US Bureau of Labor Statistics on Thursday. This reading came in above the market expectation of 3.2%.
- The annual core PPI rose 3.6% YoY in January, compared to 3.7% (revised from 3.5%) prior, beating the estimation of 3.3%.
- The US Initial Jobless Claims for the week ending February 8 fell to 213K, compared to the previous week of 220K (revised from 219K), below the market consensus of 215K.
Gold price’s broader trend remains constructive, but overbought RSI warrants caution for bulls
Technically, the gold price maintains a strong uptrend on the daily timeframe as the price holds above the key 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) remains in the overbought territory exceeding 70.0 and warrants some caution before positioning for any further gains.
The first upside barrier for the yellow metal emerges at the $2,942-$2,943 zone, representing the all-time peak touched on Tuesday. Extended gains could see a rally to $2,955, the upper boundary of the Bollinger Band. A decisive break above this level could pave the way to the $3,000 psychological level.
On the flip side, the initial support level is seen at $2,864, the low of February 12. Further south, the additional downside filter to watch is $2,744, the low of January 29. The crucial support level is located in the $2,680-2685 region, representing the lower limit of the Bollinger Band and the 100-day EMA.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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