Gold price bulls remain on the sidelines amid strong USD recovery

Gold price struggles to capitalize on the overnight bounce from a multi-day trough.
Rebounding US bond yields revive the USD demand and weigh on the XAU/USD pair.
Trump’s trade tariffs and Fed rate cut bets could lend support to the precious metal.

Gold price (XAU/USD) attracts some sellers following an Asian session uptick to the $2,745 area and turns lower for the second straight day on Tuesday amid a goodish pickup in the US Dollar (USD) demand. US President Donald Trump's trade tariff threats revive inflationary concerns and trigger a modest recovery in the US Treasury bond yields. This, in turn, assists the USD in staging a solid bounce from its lowest level since December 18 touched on Monday and undermines the USD-denominated bullion.

However, bets that the Federal Reserve (Fed) would lower borrowing costs twice by the end of this year, bolstered by Trump's remarks that he will demand interest rates drop immediately, might cap the US bond yields and the USD. Moreover, worries about the potential economic fallout from Trump's trade policies could act as a tailwind for the safe-haven Gold price. This, in turn, warrants some caution before positioning for any further losses as the focus shifts to a two-day FOMC meeting starting this Tuesday.

Gold price is undermined by resurgent USD demand; downside potential seems limited

US President Donald Trump ordered his Administration to introduce emergency 25% tariffs on Colombian imports, though the duties were put on hold after the latter agreed to unrestricted acceptance of all illegal migrants returned from the US.
Trump said this Tuesday that he would impose tariffs on producers of pharmaceuticals and computer chips soon. I will also place tariffs on aluminum and copper, and will look at steel and other industries for tariffs, Trump added.
This revived fears that Trump's protectionist stance would reignite inflation and assist the yield on the benchmark 10-year US government bond to move away from over a one-month low, underpinning the US Dollar and weighing on the Gold price.
Trump said last week that he would demand a cut in interest rates. Moreover, the markets are pricing in two 25 basis point interest rate cuts by the Federal Reserve by the end of this year, which might cap the US bond yields and the Greenback.
Traders now look to Tuesday's US economic docket – featuring Durable Goods Orders, the Conference Board's Consumer Confidence Index and the Richmond Manufacturing Index – for some impetus during the North American session.
The focus will then shift to the crucial FOMC monetary policy decision on Wednesday, which will play a key role in influencing the USD price dynamics and help determine the next leg of a directional move for the non-yielding yellow metal.

Gold price technical setup warrants some caution before placing aggressive bearish bets

On Monday, the XAU/USD showed some resilience below the 23.6% Fibonacci retracement level of the December-January positive move. Moreover, oscillators on the daily chart are holding comfortably in positive territory. This, along with the recent breakout through the $2,720-2,725 horizontal barrier, suggests that the path of least resistance for the Gold price is to the upside. Hence, it will be prudent to wait for strong follow-through selling below the overnight swing low, around the $2,730 area, and the $2,725-2,750 resistance-turned-support before positioning for deeper losses. The commodity might then slide to the $2,707-2,705 area, or the 38.2% Fibo. level, before dropping to the 50% Fibo. level, around the $2,684 region.

On the flip side, the immediate hurdle is pegged near the $2,755-2,757 zone. This is followed by the overnight swing high, around the $2,772-2,773 region and the $2,786 area, or the highest level since October 2024 touched last Friday and the all-time peak, near the $2,790 zone. Some follow-through buying, leading to a strength beyond the $2,800 mark, will be seen as a fresh trigger for bullish traders and pave the way for an extension of a well-established uptrend witnessed over the past month or so.

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Who buys the most Gold?

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

How is Gold correlated with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

What does the price of Gold depend on?

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.