Gold extends rally as Trump casts doubts on China’s tariffs

Source Fxstreet
  • Gold set to book over 2.50% gains for the week. 
  • US yields plunge, and equities rally after President Trump commented that he might not impose tariffs on China. 
  • Gold is back on track to hit the all-time high of $2,790 and is set to close off the week with a firm gain. 

Gold’s price (XAU/USD) pops higher and trades at $2,774 at the time of writing on Friday after US President Donald Trump surprised with comments the previous day casting doubts on the application of tariffs on China. The comments came after Trump had a phone call with China’s President Xi Jinping. Meanwhile, US yields are retreating after the Bank of Japan (BoJ) hiked interest rates by 25 basis points. 

In the economic data front, the US will receive its S&P Global Purchasing Managers Index (PMI) preliminary readings for January this Friday. The University of Michigan will close off the day with its Consumer Sentiment Index for January, the final reading. Headline risk might retake place with US President Donald Trump adding remarks on tariffs. 

Daily digest market movers: Angry mob

  • US President Donald Trump commented on his phone call with Chinese Prime Minister Xi Jinping that he does not want to impose tariffs on China and that a deal would be more constructive, Bloomberg reported. 
  • President Trump also talked about the Federal Reserve (Fed) and US rates, affirming that he would demand an immediate drop. While lower borrowing costs are typically bullish for precious metals, traders are cautious as monetary policy is set by the central bank, which is due to publish its interest rate decision next week, Bloomberg reports. 
  • US yields are off their weekly lows, with the US 10-year benchmark rate currently trading at 4.625%, recovering from its poor performance earlier this week at 4.528%. However, it still has a long way to go before it reaches the more-than-one-year high from last week at 4.807%.

Technical Analysis: More dovish than ever?

Gold price rallies again, thanks to US President Donald Trump’s statement after his phone call with Chinese President Xi Jinping that he would rather not impose tariffs on China. It looks like Trump is backtracking on earlier comments made during his campaign. A tail risk could grow here, in case negotiations are not going the way t Trump wants, he can still implement tariffs anyway. 

First line of support remains $2,721, a sort of double top in November and December broken on Tuesday. Just below that, $2,709 (October 23, 2024, low) is in focus as a second nearby support. In case both abovementioned levels snap, look for a dive back to $2,680 with a full-swing sell-off. 

Gold is back on its way to the all-time high of $2,790, which is less than 1% away from current levels. Once above that, a fresh all-time high will present itself. Meanwhile, some analysts and strategists have penciled in calls for $3,000, but $2,800 looks to be a good starting point as the next resistance on the upside. 

XAU/USD: Daily Chart

XAU/USD: Daily Chart

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.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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