Gold Prices Rally as US Tariff Concerns Boost Safe-Haven Demand
Gold prices surged during the North American session on Thursday, gaining momentum after the Producer Price Index (PPI) report came in slightly higher than expected. The precious metal is currently trading at $2,925, nearing its all-time high of $2,942 recorded on February 11, 2024.
The rally was driven by escalating trade tensions, as US President Donald Trump signed the reciprocal tariff order, stating: “Whatever they charge us, we will charge them.” The announcement sparked investor concerns, increasing demand for safe-haven assets like gold. Trump also hinted at forthcoming tariffs on autos, steel, and aluminum, further fueling market uncertainty.
US Dollar Weakens, Treasury Yields Drop, Supporting Gold Prices
Gold prices received an additional boost as the US Dollar Index (DXY) dropped 0.61% to 107.32, reflecting broader dollar weakness. Meanwhile, US Treasury bond yields plunged, with the 10-year yield falling 10 basis points (bps) to 4.519%.
Despite concerns over inflationary pressures, the latest US labor market data showed resilience. The Department of Labor reported that weekly jobless claims dropped to 213K, below market forecasts of 215K, indicating continued economic strength.
Central Bank Gold Purchases Surge, Adding Upward Pressure
A key factor supporting gold prices is strong central bank demand. According to the World Gold Council (WGC), global central banks have purchased over 1,000 tons of gold for the third consecutive year. Following Trump’s election victory, central bank gold purchases soared 54% year-over-year, reaching 333 tons.
Market Movers: Key Economic Indicators Impacting Gold Prices
- US Treasury bond yields plunged, with real yields falling eight basis points to 2.072%, a bullish signal for gold (XAU/USD).
- January PPI data showed a 0.4% month-over-month (MoM) increase, exceeding expectations of 0.3%, while the annual PPI rose 3.5%, up from 3.3% in December.
- Core PPI (excluding food and energy) increased 0.3% MoM and 3.6% year-over-year (YoY), higher than the forecasted 3.3% YoY.
- Federal Reserve policy outlook shifted after the latest inflation reports, with Chair Jerome Powell stating, “We are close but not there on inflation.” The Fed is now expected to keep interest rates restrictive for longer.
- Money market projections show traders pricing in 38.5 basis points of rate cuts by the Federal Reserve in 2025.
XAU/USD Technical Outlook: Gold Targets New Record High
Gold’s bullish momentum continues, with XAU/USD clearing its February 12 peak of $2,909. The Relative Strength Index (RSI) is turning higher, signaling strong bullish momentum.
Key Resistance Levels:
- $2,942 – All-time high (February 11, 2024)
- $2,950 – Psychological resistance level
- $3,000 – Next major milestone for gold prices
Key Support Levels:
- $2,900 – Immediate support level
- $2,850 – Strong psychological support
- $2,790 – October 31 cycle high (turned support)
- $2,730 – January 27 swing low
Conclusion: Gold’s Outlook Amid Trade Uncertainty
As US trade tensions escalate and inflation remains a concern, gold prices are positioned for further gains. With central banks increasing gold reserves and investor demand surging, XAU/USD could see continued bullish momentum in the near term. Traders should watch key economic events and technical levels for potential breakout opportunities.
