- Gold surpasses $2900 amid US trade tensions and strong investor demand.
- Despite bond yields and a strong dollar, gold's momentum continues due to geopolitical and inflation concerns.
- Upcoming US economic events may cause volatility, with technicals suggesting a potential pullback.
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Gold is continuing to defy gravity and is hitting new records almost daily.
Today, it climbed above the $2900 mark for the first time ever, as it continues to close in on the $3K mark. The latest gains come on the back of presumably increased haven demand sparked by a further escalation in trade tensions between the United States and its major trade partners. So far, precious metal investors have ignored the renewed strength in US Dollar and a rebound in bond yields, both driven by stronger US data last week.
A sustained rise in yields is something that could ultimately weigh on gold’s future gains as that increases the opportunity cost of holding onto gold over bonds. But for now, traders are happy to just ride the bullish momentum as the metal continues to make higher highs and higher lows. Let’s see if that run continues this week. As well as trade tensions, key upcoming events this week include US CPI data, Federal Reserve Chair Jerome Powell’s testimony, and corporate earnings, all of which could drive volatility.
What other factors are driving gold’s rally?
Gold’s recent strength stems from a mix of geopolitical uncertainties, inflation concerns, central bank policies, and continued strong demand from both central banks and retail investors. Although global bond yields have been on the rise – typically a headwind for gold – that trend has paused since mid-January, allowing the metal to maintain its momentum. So far, the bullish factors have outweighed the bearish ones, but will that continue to be the case moving forward?
Keep an eye on the US dollar
Both the US dollar and bond yields gained ground on Friday as fresh inflation concerns emerged. The University of Michigan’s Inflation Expectations survey jumped to 4.3% from 3.3%, fuelling worries that inflationary pressures remain stubborn. Wage growth in January clocked in at 0.5% month-on-month, reinforcing expectations that the Federal Reserve will maintain its higher-for-longer stance on interest rates. Speculation over potential inflationary policies under a second Trump administration has also bolstered a hawkish outlook. Markets have repriced rate-cut expectations, lending strength to the greenback. Yet, gold barely flinched, momentarily dipping from Friday’s record high before swiftly rebounding to a new all-time peak today. Friday’s data has virtually ruled out any imminent Fed rate cuts – though they were never particularly likely in the first place.
Key Events This Week: Powell’s Testimony, CPI, and Retail Sales
With Trump’s economic policies likely to exert further upward pressure on inflation, the Fed is expected to hold rates steady. The US dollar remains well-supported, especially against the euro, which remains vulnerable to trade tensions and potential US-imposed tariffs.
- Powell’s Testimony – Tuesday, 11 February (15:00 GMT): Powell is likely to reaffirm the Fed’s independence, especially given the latest strong inflation and wage data. Any hints of dovishness could put pressure on the US dollar and bond yields, but such a shift remains unlikely.
- US CPI – Wednesday, 12 February (13:30 GMT): Markets will be scrutinising inflation figures closely. A strong CPI reading would reinforce expectations of a prolonged Fed pause, further underpinning the dollar. Thursday’s Producer Price Index (PPI) release will also be of interest.
- US Retail Sales – Friday, 14 February (13:30 GMT): Retail spending has remained resilient despite high interest rates and inflationary pressures. However, December’s weaker-than-expected data raises concerns about a potential slowdown in consumer spending. Corporate earnings, particularly from major retailers and tech firms, will provide further insight into the health of the US consumer.
Gold Technical Analysis
Gold remains firmly in an uptrend, repeatedly posting fresh highs. However, signs of exhaustion could soon emerge. After all, the Relative Strength Index (RSI) is flashing overbought signals across multiple timeframes: the daily RSI sits at 77, the weekly is above 70 with negative divergence, and the monthly has pushed beyond 79.
These levels suggest that a pullback or at least some consolidation may be on the horizon. But we need to see a reversal sign first to turn tactically bearish. The overbought RSI conditions are merely a warning sign for the bulls to be alert.
Gold has now broken through the 127.2% Fibonacci extension of its October-November correction at $2,859. If the rally continues, the next upside target lies at the 161.8% extension at $2,946.
On the downside, immediate support is at the now-broken $2,880 level, followed by $2,850. Below that, the October high of $2,790 and the $2,710-$2,725 region are the next key levels to watch.
While gold’s bullish trend remains intact, traders should be mindful of potential near-term corrections given extreme RSI readings and evolving macroeconomic factors.
Record Highs: More Upside or a Pullback?
Trump’s stance on trade tariffs has been a wildcard, both in his previous and current administrations. His early tariff threats spooked markets, prompting investors to seek refuge in safe-haven assets like gold.
Now, his latest pledge to impose tariffs on steel and aluminium imports has added further fuel to gold’s appeal. That said, with equity markets holding steady, investors may be viewing Trump’s tariff rhetoric as more of a negotiation tactic than a real economic threat. If signs emerge that he might delay or scale back tariffs, gold’s role as a hedge against trade risks could diminish somewhat.