Gold rises to record high on trade war concerns

Gold prices exhibited high volatility on Monday, plunging from $2,800 to $2,770 per ounce in early trading, then surging to a new all-time high of 2,830 per ounce. If gold prices rise, they may encounter resistance at $2,900 per ounce, while if gold prices decline, support may be encountered near $2,700 per ounce. 

Gold prices remained bullish on Monday, reaching a new all-time high of $2,830 per ounce, boosted by uncertainty over Donald Trump’s proposed tariffs. Uncertainty over Trump’s future policies and trade tariffs promotes a risk aversion sentiment, raising the appeal of safe-haven assets, such as gold. President Donald Trump’s trade policies may ignite global trading wars, which raises the appeal of gold. 

Trump has been using threats of imposing trade tariffs as a negotiation tool to further his agenda with other countries. Trump has threatened BRICS countries with massive tariffs of up to 100% if they try to replace the dollar with any other currency or if they create a new currency for international trade. On Saturday, Trump announced that he would impose 25% tariffs on Canadian and Mexican goods, except Canadian energy exports, which will be subject to a 10% tariff. In addition, Trump threatened to impose a 10% duty on imports from China to the US. 

On Monday, Trump posted a new list of threats and grievances on his social media concerning Canada, China, and several other countries. Trump’s comments triggered a risk aversion sentiment boosting gold prices to all-time highs early on Monday. Later on Monday, however, Trump took back some of his tariff threats, demonstrating that they are used to intimidate other countries into submission. Trump stated that he would postpone imposing tariffs on Canada and Mexico for a month, still holding the tariffs as a threat against them. Gold prices retreated somewhat after Trump withdrew the tariffs.

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 exhibited high volatility on Monday and the dollar index skyrocketed from 108.4 to 109.6 on Monday’s opening over Trump’s tariff threats over the weekend. The dollar pared gains during the day, however, and the dollar index fell back to 108.4. US treasury yields edged higher, with the US 10-year bond yield rising from 4.55% to 4.57%.   

Gold prices are under pressure by decreased Fed rate cut expectations. The US Federal Reserve held interest rates steady at its January meeting, which was concluded on Wednesday, after delivering three consecutive rate cuts in 2024. FOMC policymakers voted unanimously to maintain the federal funds range to a target range of 4.25% to 4.50%, which was in line with expectations. 

Fed Chair Jerome Powell delivered a mildly hawkish message after the policy meeting, putting pressure on gold prices. Powell stated that the Fed’s approach will remain data-driven and stressed that the central bank needs to consider potential policy changes under Trump’s administration. Market odds of another rate cut before summer dropped after Powell’s speech, with markets pricing in a rate cut in June at the earliest.

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Written by:
Myrsini Giannouli

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