Gold prices (XAU/USD) faced pressure after an early rebound from a multi-day low as U.S. Treasury yields recovered, renewing demand for the U.S. dollar (USD). Despite an uptick in gold prices during the Asian session, the yellow metal has struggled to capitalize on the gains as market dynamics shift. As the USD regains strength, concerns about trade tariffs and expectations of U.S. Federal Reserve (Fed) rate cuts continue to impact gold, suggesting potential for both bullish and bearish movements in the near future.
US Bond Yields and USD Demand Revive, Weighing on Gold
Gold prices found some support earlier, reaching the $2,745 region after touching a multi-day trough. However, the rebound was short-lived as the resurgent demand for USD and the recovery in U.S. Treasury bond yields put downward pressure on the XAU/USD pair. Investors were drawn to the USD amid a modest recovery in U.S. bond yields, which had previously dropped to their lowest levels since December 18. The rise in bond yields made USD-denominated assets, including gold, less attractive, leading to a shift in market sentiment.
Trump’s Trade Tariff Threats and Inflationary Concerns
A key driver behind the fluctuations in gold and USD prices is the renewed inflationary concerns arising from U.S. President Donald Trump’s trade policies. Trump’s latest threats to impose tariffs on various products, including pharmaceuticals, computer chips, aluminum, copper, and steel, have sparked fears that his protectionist stance could reignite inflation in the U.S. This revival of inflation concerns helped support U.S. bond yields and, by extension, the dollar.
On Tuesday, Trump further announced plans to impose tariffs on Colombian imports and suggested additional tariffs on industries such as aluminum and copper. These policies added to the market’s uncertainty, weighing on gold prices, which typically perform well during times of inflation or economic uncertainty.
Federal Reserve’s Rate Cut Bets Provide Support for Gold
Despite the dollar’s recovery, there are still supportive factors for gold in the form of expectations regarding U.S. monetary policy. Market participants are increasingly pricing in the possibility of two 25 basis point rate cuts by the Federal Reserve before the end of this year. This dovish outlook, combined with Trump’s statements demanding immediate interest rate cuts, could cap further gains in U.S. bond yields and limit the upside potential of the USD. Such conditions might bolster gold’s appeal as a non-yielding safe-haven asset.
In addition, concerns about the economic fallout from Trump’s trade policies and a potential slowdown in U.S. economic growth could encourage more investors to seek the safety of gold. The uncertainty surrounding these issues suggests that, despite the recent pressures, gold could find some support.
Economic Data and the FOMC Meeting
As the market moves forward, traders are awaiting key economic data from the U.S. to provide direction for both the dollar and gold. The U.S. economic docket includes important indicators such as Durable Goods Orders, the Conference Board’s Consumer Confidence Index, and the Richmond Manufacturing Index, which are expected to influence the dollar’s strength.
However, all eyes will be on the Federal Open Market Committee (FOMC) meeting, which began on Tuesday and concludes on Wednesday. The Fed’s monetary policy decision and forward guidance on interest rates will play a critical role in shaping market expectations and determining the next moves for gold and the USD.
Gold Price Technical Analysis: Caution Advised Before Bearish Bets
From a technical standpoint, gold has shown resilience despite the recent pullback. On Monday, the gold price held support just below the 23.6% Fibonacci retracement level of the December-January rally. Oscillators on the daily chart remain in positive territory, suggesting that the underlying bullish trend remains intact.
Furthermore, gold recently broke through the $2,720-$2,725 resistance zone, signaling potential for continued upward movement. However, given the recent pressure from the USD, it would be prudent to wait for a clear breakout below the $2,730 swing low and the $2,725-2,750 resistance-turned-support zone before placing aggressive bearish bets.
If gold does fall below these levels, the next key support areas lie near the $2,707-$2,705 zone (38.2% Fibonacci retracement), followed by the $2,684 region (50% Fibonacci retracement).
On the bullish side, gold’s immediate resistance is near the $2,755-$2,757 region, with further resistance around $2,772-$2,773 and the all-time peak near $2,790. A strong move above the $2,800 mark would signal renewed bullish momentum and could extend gold’s uptrend.
Conclusion
Gold’s price dynamics are heavily influenced by a mix of factors, including resurgent demand for the USD, potential inflation risks from trade tariffs, and expectations of Federal Reserve rate cuts. As the market anticipates further developments in U.S. economic policy and trade relations, traders should remain cautious and closely monitor the ongoing FOMC meeting for signals that could shape the next phase of the gold market. The technical setup suggests limited downside potential, but any significant shifts in USD or bond yield dynamics could push gold prices in either direction.
