Gold prices drop from all-time highs on profit-taking

Gold prices registered a new all-time high of $2,956 per ounce on Monday but plummeted below $2,900 per ounce on Tuesday. Gold prices pared some losses late on Tuesday, climbing above the $2,910 per ounce level. If gold prices rise, they may encounter resistance at $2,956 per ounce, while if gold prices decline, support may be encountered near $2,877 per ounce. 

Gold prices reached a new all-time high of $2,956 per ounce on Monday but could not maintain their bullish momentum and plummeted on Tuesday as many traders rushed to take their profits. Although gold prices are trading in overbought conditions, they are likely to rise to new record highs in the following days as demand for safe-haven assets remains elevated. 

Uncertainty over US President Donald Trump’s future policies and trade tariffs promotes risk aversion, raising the appeal of safe-haven assets such as gold. Concerns that Trump’s trade policies may ignite global trading wars are also 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. He has threatened to announce reciprocal tariffs on many countries, which would raise US import taxes to match those imposed by the country’s other trading partners. 

Trump reaffirmed this week that he intends to impose 25% tariffs on Canada and Mexico. Trump’s plans to do so were postponed for a month after both countries agreed to tighten border activities. However, Trump stated that he intends to proceed with the tariffs on March 4. If Trump implements 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.

Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar dipped on Tuesday and the dollar index dropped from 106.6 to 106.3. US treasury yields declined, putting pressure on the dollar, with the US 10-year bond yield dropping from 4.40% to 4.30%.

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%. 

US Treasury Secretary Scott Bessent said on Tuesday that trading tariffs are an important source of revenue and an essential part of the US government’s economic policy. Bessent also stated that he aims to lower US treasury bond yields while easing monetary policy. US treasury yields dipped after Bessent’s speech, and Fed rate cut expectations rose. Markets' odds of rate cuts within the year are currently above 50 basis points, up from less than 40bps last week.

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Written by:
Myrsini Giannouli

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