Gold prices (XAUUSD) are at a crossroads

4 Şubat 2025

Gold prices (XAUUSD) are at a crossroads, stabilising below historic highs amid concerns over a trade war

Written by: Rania Gule, Senior Market Analyst at XS.com – MENA

Gold is trading within a narrow range amid mixed market signals, reflecting a cautious wait-and-see approach among investors. Despite approaching its record high of $2,840 today, Tuesday, rising U.S. bond yields and a stronger U.S. dollar limit its ability to make further gains. However, concerns about the potential economic fallout from the tariffs imposed by U.S. President Donald Trump provide strong support for gold as a safe-haven asset. In this context, the key question remains: Can gold break its record highs again, or will economic pressures force it to retreat?

In my view, Trump’s recent decision to suspend tariffs on Mexico and Canada after reaching an agreement on border security has boosted investor confidence in traditional financial markets, leading to a slight increase in risk appetite. This shift towards riskier assets puts pressure on gold, reducing its appeal as a haven. At the same time, I believe the Federal Reserve’s more hawkish stance has helped drive U.S. bond yields higher, supporting the dollar and adding further negative pressure on gold prices. However, these negative factors are still facing resistance from the supportive elements for the yellow metal, particularly inflation concerns tied to Trump’s protectionist policies.

Despite the pressures it faces, gold remains supported by rising inflation fears. Trump’s trade policies, including the imposition of new tariffs, are expected to drive up import prices, which could translate into higher inflation in the U.S. In such circumstances, investors typically turn to gold as a hedge against the loss of purchasing power of the dollar. Additionally, higher inflation may reduce the likelihood of the Federal Reserve cutting interest rates, making investments in non-yielding assets like gold more attractive.

For me, recent economic data suggests that the U.S. economy is maintaining its momentum, as the ISM Manufacturing Purchasing Managers Index (PMI) rose to 50.9 in January, surpassing expectations. The inflation index also increased to 54.9, raising concerns about future price pressures. This data could lead to a steady or even higher interest rate environment in the medium term, which may negatively affect gold. However, any signs of economic weakness or rising geopolitical risks could keep gold on an upward trajectory.

Given these circumstances, it seems that gold’s path is still tied to a mix of economic and political factors. Although the suspension of tariffs on Mexico and Canada has temporarily reduced investor appetite for the precious metal, ongoing U.S. trade threats, along with potential rising inflation, could bolster demand for gold as a hedge against uncertainty. On the other hand, a stronger U.S. dollar and the continued rise in bond yields could act as obstacles to any new push towards record highs.

For me, short-term expectations suggest that volatility in gold prices could persist, as investors continue to monitor U.S. economic data, including job data, the JOLTS report, and factory orders. Any signs of economic slowdown or rising inflationary pressures could push gold toward new gains, while positive growth data may limit its rise.

Overall, the upward trend for gold remains intact despite the obstacles it faces. We can expect continued upward movement, and any corrective pullbacks should be seen as buying opportunities, based on the supporting factors that have not fundamentally changed. On the other hand, the downward trend, in my view, requires clearer signals of reduced demand for safe-haven assets, whether through stabilized trade policies or slowing inflation. As markets remain uncertain, it seems that gold will continue to be a focus for investors, both as a hedge and as an investment opportunity amidst ongoing economic volatility.

 

Zaid Barem / YMM