Gold prices surged to unprecedented levels on Monday, driven by a surge in safe-haven demand.
This followed US President Donald Trump’s announcement of additional trade tariffs, specifically targeting commodity imports.
Investors, concerned about the potential economic fallout from escalating trade tensions, flocked to gold as a reliable store of value and a hedge against market volatility.
The new tariffs, which could impact a wide range of raw materials and commodities, further fueled uncertainty and risk aversion in global markets, boosting the appeal of gold as a safe-haven asset.
“The move comes after United States (US) President Donald Trump said he would announce “reciprocal tariffs” on many countries on Tuesday or Wednesday, adding to increasing uncertainty in global financial markets,” Filip Lagaart, editor at FXstreet, said in a report.
At the time of writing, the April gold contract on COMEX was at $2,928.89 per ounce, up 1.4% from the previous close.
The contract had hit a record high of $2,937.51 an ounce earlier in the session.
Safe-haven demand
The price of gold surged to unprecedented highs following Trump’s announcement on Sunday that he will impose a 25% tariff on all steel and aluminum imports into the US.
This decision has triggered concerns about further obstacles to global trade.
Trump also indicated his intention to implement reciprocal tariffs, which would involve raising US import duties to match those imposed by its trading partners.
This announcement comes just days after the implementation of Trump’s 10% tariffs on Chinese goods, which prompted retaliatory trade measures from Beijing.
The escalating trade tensions between the world’s two largest economies have fueled uncertainty in global markets, driving investors towards safe-haven assets like gold.
The yellow metal is traditionally seen as a hedge against inflation and economic instability.
US inflation data awaited
Gold prices experienced notable gains and reached record highs.
However, the potential for even greater increases was held back by the strength of the US dollar.
Investors remained cautious due to the anticipation of sustained high interest rates in the US over the coming months.
Lagaart said:
Meanwhile, traders will focus on Federal Reserve (Fed) Chair Jerome Powell’s semi-annual testimony to lawmakers on Tuesday and Wednesday for fresh clues about the path forward for US monetary policy.
US consumer price index (CPI) inflation data for January is scheduled to be released later this week, and economists and investors are eagerly awaiting the results.
This data is considered a key indicator of inflation and is expected to play a significant role in shaping expectations for future US interest rate decisions made by the Federal Reserve.
The Fed has been raising interest rates in an effort to combat inflation, and the January CPI data will be closely watched for signs that these efforts are having an impact.
If the data shows that inflation is continuing to rise at a rapid pace, it could increase pressure on the Fed to continue raising interest rates aggressively.
Conversely, if the data shows that inflation is moderating, it could give the Federal Reserve more flexibility in terms of its interest rate policy.
Correction in sight?
Analysts expect gold prices to correct from the record high levels very soon.
“Gold’s daily MACD (moving average divergence and convergence) pushed further into overbought territory, suggesting that buyers should exercise some caution,” David Morrison, senior market analyst at Trade Nation, said.
The gold market may start pricing in risks associated with Trump’s headline during today’s US session.
The path for gold is clear, with $3,000 approaching fast, but quick profit-taking could be imminent, according to Lagaart.
On the upside, gold prices have breached the first two resistance levels on Monday.
The first level was at $2,881 per ounce, and the second one was $2,900.
Safe-haven demand among investors has outshadowed all the fundamentals in the market currently.
“Gold has made steady upside progress since the end of December. Traders are now picking up on gold’s potential as a safe haven and store of value as tariff threats and countermeasures seem the order of the day,” Morrison added.
Barbara Lambrecht, commodity analyst at Commerzbank AG, said in a report:
Gold is in demand as a safe haven in politically turbulent times. A sharp rise in lease rates also indicates tension in the physical market. However, we are assuming an exaggeration, although a correction could still be some way off.
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