Gold rises to an all-time high, then retreats

Gold prices hit an all-time high of $2,942 per ounce in early trading on Tuesday. Gold’s rally was halted later in the day, however, and gold prices dropped below $2,900 per ounce. If gold prices rise, they may encounter resistance at the psychological level of $2,950 per ounce, while if gold prices decline, support may be encountered near $2,770 per ounce. 

Gold prices maintained their bullish momentum early on Tuesday, reaching a new all-time high of $2,942 per ounce. Gold’s rally was halted later in the day, however, on profit-taking ahead of Fed Chair Powell’s testimony before the Senate Banking Committee. Rising US treasury yields also put pressure on gold prices on Tuesday. 

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 dipped on Tuesday, with the dollar index dropping from 108.5 to 107.9. US treasury yields, on the other hand, gained strength, with the US 10-year bond yield rising from 4.49% to 4.53%.     

Gold prices are under pressure by decreased Fed rate cut expectations. The US Federal Reserve held interest rates steady at its January meeting 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%. Market odds of another rate cut before summer are declining, with markets pricing in a rate cut in June at the earliest. Rate cut expectations within the year are low, with approximately 40 basis points of rate cuts priced within 2025.

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. 

On Tuesday, Powell testified about the Semi-Annual Monetary Policy Report before the Senate Banking Committee. Powell’s speech was hawkish, hinting that the Fed may pause rate cuts for some time. Powell stated that the US economy is robust, while at the same time, inflation remains elevated, indicating that interest rates will remain at restrictive levels for longer than originally anticipated. Powell refused to comment on how the new US government’s tariff policies are affecting the US economy and the pace of monetary policy normalization but stated that the US President is forbidden by law to remove a Fed board member.

Uncertainty over US President Donald Trump’s future policies and trade tariffs promotes a risk aversion sentiment, raising the appeal of safe-haven assets, such as gold. Concerns that Trump’s trade policies may ignite global trading wars are raising the appeal of gold. 

US President Donald Trump has been using threats of imposing trade tariffs as a negotiation tool to further his agenda with other countries. Trump has threatened that he will announce reciprocal tariffs on many countries, which would raise US import taxes to match those imposed by the country’s other trading partners. On Monday, Trump announced a 25% tariff on steel and aluminum imports for all countries importing into the US, raising concerns over global trade wars. If Trump goes through with these heavy tariffs, global inflation is likely to rise and the economic outlook will worsen, thus promoting a risk aversion sentiment that boosts safe-haven assets.

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Written by:
Myrsini Giannouli

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