Gold prices surge on safe-haven demand

Gold prices rose from $2.710 to $2,745 per ounce on Tuesday, their highest level in almost three months. If gold prices rise, they may encounter resistance at $2,790 per ounce, while if gold prices decline, support may be encountered near $2,656 per ounce. 

Gold prices are driven by opposing forces. The dollar’s weakness drove gold prices up this week. In addition, uncertainty over Trump’s future policies and trade tariffs promotes a risk aversion sentiment, boosting safe-haven assets, such as gold. The Fed’s recent hawkish shift, however, is putting pressure on gold prices. 

Donald Trump’s Presidential inauguration at the US capitol attracted market attention on Monday. Trump was sworn in as the 47th president of the United States. Trump has already announced a plan to impose 25% tariffs on imports from Canada and Mexico starting February 1. He has hinted that his administration is considering universal tariffs on all imports to the US.

US inflation data last week came in lower than anticipated, indicating that disinflation in the US is progressing, which may affect the Fed’s rate outlook. Headline inflation rose by 2.9% year-on-year in December from 2.7% in November. Monthly inflation rose by 0.4% in December against 0.3% in November. Core CPI, however, which excludes food and energy, rose by just 0.2% in December following a 0.3% rise in November. Core CPI rose 3.2% year-on-year in December, below estimates for a 3.3% increase and November’s 3.3% gain. 

Gold prices have been typically directed by the dollar’s movement, as the competing gold loses appeal as an investment when the dollar rises. The dollar was volatile on Tuesday and the dollar index rose from 108.3 to 108.7 in early trading, then dipped below 108.0 later in the day. US treasury yields edged lower, with the US 10-year bond yield dropping from 4.63% to 4.58%.   

Gold prices are under pressure by decreased Fed rate cut expectations. The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%. Fed Chair Jerome Powell delivered a hawkish speech after the meeting, emphasizing the need to be cautious about further rate cuts. Powell stated that the Fed’s approach will remain data-driven and hinted that the pace of future rate cuts will be slower.

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Written by:
Myrsini Giannouli

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