Gold Prices Gain Traction Above $2,850 Amid US Inflation Week and Trade War Jitters

Warren Takunda

Summary:

Gold prices hold above $2,850 but face headwinds from a resurgent US Dollar amid heightened trade war fears.

BUY XAUUSD

Close Time

CLOSED

2900.00

Entry Price

3000.00

2840.00

4731.87 -7.70 -0.16%

101.5

Pips

Profit

2840.00

2910.15

Exit Price

2900.00

Entry Price

3000.00

Gold prices have kicked off the US inflation week with renewed upside momentum, holding firm above the $2,850 mark. However, concerns over a brewing global trade war and a corresponding surge in demand for the US Dollar (USD) as a safe-haven asset may cap further gains in the yellow metal.

Risk aversion resurfaced late Friday as trade war fears took center stage, reversing the downward pressure on the USD that had been triggered by weaker-than-expected US Nonfarm Payrolls (NFP) data. The renewed appetite for the Greenback saw gold prices retreat from a fresh all-time high of $2,887.

US President Donald Trump sent shockwaves through financial markets on Friday by announcing that he would unveil new reciprocal tariffs on countries that impose taxes on US imports. This announcement rattled risk sentiment, leading to a sharp decline in US equities, even as expectations for a dovish Federal Reserve (Fed) policy stance gained traction following disappointing labor market data.

The January NFP report revealed that the US economy added only 143,000 jobs, a sharp decline from December’s upwardly revised 307,000 job additions and below market forecasts of a 170,000 increase. The Unemployment Rate ticked lower to 4% from 4.1%, while the Labor Force Participation Rate edged slightly higher to 62.6% from 62.5%.

Further escalating trade tensions, Trump doubled down on his protectionist stance on Sunday, declaring a blanket 25% tariff on all steel and aluminum imports. This move sent the Euro and commodity-linked currencies such as the Australian Dollar (AUD) and the New Zealand Dollar (NZD) tumbling, as market participants sought refuge in the USD. The resultant surge in the Greenback has, in turn, limited the extent of gold’s upside potential.

Despite the drag from a stronger USD, gold continues to draw support from its status as a traditional safe-haven asset amid rising trade war fears. Additionally, the People’s Bank of China (PBOC) has continued its gold-buying spree, reinforcing the bullish outlook for the metal.

According to official data cited by Bloomberg, the PBOC increased its gold reserves by 0.16 million troy ounces in January, marking the third consecutive month of accumulation. This ongoing central bank demand highlights a broader trend among global financial institutions seeking to diversify their reserves amid economic uncertainty.

Meanwhile, expectations of additional fiscal stimulus from China could further bolster demand for gold. China’s persistent Producer Price Index (PPI) deflation, which extended into its 28th consecutive month in January with a 2.3% decline, has fueled speculation that Beijing may roll out additional policy support. However, an uptick in China’s Consumer Price Index (CPI) failed to ignite optimism in financial markets.

Looking ahead, the USD may extend its recovery momentum if risk-off flows intensify or if traders engage in profit-taking on their short-dollar positions ahead of Wednesday’s US Consumer Price Index (CPI) inflation report. In either scenario, gold’s upside potential could remain constrained.

However, any downside moves in gold prices are likely to find strong support from dovish Fed expectations, China’s stimulus hopes, and the ongoing trade war risks.

Technical Analysis

Gold prices opened the week with a clear bullish bias, having successfully retested and held above the breached resistance of the bullish channel. The four-hour chart confirmed a Bull Cross after the metal closed above the falling trendline resistance at $2,862 in Friday’s Asian session.

Following this breakout, gold surged to an all-time high of $2,887 before retracing slightly to stabilize near $2,860. Despite the pullback, the metal remained well-supported by the 21-four hourly Simple Moving Average (SMA), currently positioned at $2,864.

At the time of writing, gold prices have rebounded from the 21-day SMA and are attempting to gain acceptance above the $2,900 level. The next key resistance level to watch is the psychological barrier at $2,950, with a successful break opening the door toward the $3000 mark.

TRADE RECOMMENDATION

BUY GOLD

ENTRY PRICE: 2900

STOP LOSS: 2840

TAKE PROFIT: 3000

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Gold Prices Gain Traction Above $2,850 Amid US Inflation Week and Trade War Jitters

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