Gold prices : Rally Pauses
- Gold prices Jumps to Record High of $2,954 as Trade Policy Worries Mount.
- Trump’s Tariff Expansion on Lumber and Soft Commodities Rattles Markets.
- US Economic Data a Mixed Bag: Manufacturing Up, Services Down.
Gold prices dipped slightly late on Friday, but are still on track to close out the week with gains, marking an impressive eight consecutive weeks of increases that have sent the precious metal soaring to an all-time peak of $2,954. As of now, XAU/USD is trading at $2,940, a minor decrease of 0.15%.
The story in financial markets remains consistent: US President Donald Trump continues to keep tariffs in the spotlight. Expanding beyond the previously announced 25% tariffs targeting cars, pharmaceuticals, and chips, Trump has now broadened these duties to include lumber and various soft commodities.
This move has really fueled the rally in gold prices as investors, seeking a safe haven amidst the growing uncertainty surrounding US trade policies, have pushed prices higher. Meanwhile, geopolitical tensions have receded somewhat as discussions to resolve the Russia-Ukraine conflict showed some progress, offering a bit of relief to the markets.
Looking at the latest numbers, the US economy is presenting a mixed picture. The manufacturing sector showed improvement with a rise in the PMI. However, on the other hand, the Services PMI surprisingly contracted, marking its first downturn since January 2023.
Further data painted a less optimistic picture, revealing significant drops in Existing Home Sales, and a continued slide in the University of Michigan (UoM) Consumer Sentiment reading for February.
Daily Market Highlights: Gold Price Holds Steady Despite US Yields Retreat
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The US 10-year Treasury yield slips nine basis points (bps), currently yielding 4.416%.
- US real yields, which typically move in the opposite direction of gold prices, are down four basis points to 1.996%, providing a tailwind for gold.
- S&P Global’s figures revealed that the Manufacturing PMI for February expanded to 51.6, up from 51.2 and exceeding expectations. In contrast, the Services PMI took a hit, falling from 52.9 to 49.7.
- The University of Michigan Consumer Sentiment Index for February edged down from 71.1 to 64.7. American consumers’ expectations for inflation over the next year have risen from 3.3% to 4.3%, as anticipated. Looking further ahead, five-year inflation expectations are holding steady at 3.5%, up slightly from the previous month’s 3.2%.
- Minutes from the Federal Reserve’s meeting on Wednesday indicated that Trump’s trade and immigration policies are raising concerns about increasing inflation.
- The World Gold Council reported a surge in central bank gold purchases, up over 54% year-over-year to 333 tonnes following Trump’s election victory.
- Money market fed funds futures are currently factoring in 50 basis points of interest rate cuts by the Federal Reserve in 2025.
XAU/USD Technical Analysis: Gold Encounters Resistance and Pulls Back
Gold prices are still trending upward, but the momentum seems to be waning a bit. The Relative Strength Index (RSI) suggests that buyers are losing steam, with the RSI moving out of overbought territory, potentially paving the way for a pullback in gold prices.
The initial key support level to watch is $2,900. If this level is breached, sellers might then target the February 14 swing low at $2,877, followed by the February 12 daily low of $2,864. On the flip side, if XAU/USD manages to break above $2,954, the first resistance level to overcome would be the psychological mark of $2,950, with the next target being $3,000.
Gold FAQs
Throughout history, gold has been incredibly important, serving as a key way for people to store wealth and as a method of payment. Today, beyond its beauty and use in jewelry, gold is widely considered a safe-haven asset, meaning it’s viewed as a solid investment during uncertain times. Gold prices is also often seen as protection against inflation and weakening currencies because it doesn’t rely on any specific company or government.
Central banks are the biggest holders of gold. To support their currencies during times of instability, central banks often diversify their holdings and buy gold to boost confidence in their economy and currency. Large gold reserves can inspire trust in a country’s financial stability. According to the World Gold Council, central banks added a massive 1,136 tonnes of gold, worth approximately $70 billion, to their reserves in 2022. This was the largest annual purchase on record. Central banks in emerging economies like China, India, and Turkey are rapidly increasing their gold reserves.
Gold prices tends to move in the opposite direction to the US Dollar and US Treasuries, both of which are major reserve and safe-haven assets themselves. When the Dollar loses value, gold typically goes up, allowing investors and central banks to spread their investments during turbulent periods. Gold also has an inverse relationship with riskier assets. When the stock market is booming, gold prices tend to weaken, while downturns in riskier markets often benefit the precious metal.
A wide range of factors can influence gold prices. Geopolitical instability or recession fears can quickly drive up gold prices due to its safe-haven appeal. As an asset that doesn’t generate yield, gold tends to become more attractive when interest rates are low, while higher borrowing costs usually put downward pressure on it. However, the US Dollar’s performance often dictates the biggest moves because gold is priced in dollars (XAU/USD). A strong Dollar typically keeps gold prices in check, while a weaker Dollar is likely to push gold prices higher.
