Saad Ullah
Gold (XAU/USD) continues showing strength as it trades around $3,230, remaining close to its all-time high as investors seek safe havens amid escalating US-China trade conflicts and anticipate Federal Reserve rate cuts due to potential economic slowdown.
Gold (XAU) Benefits from US-China Trade War Escalation
Gold price (XAU/USD) maintains its upward momentum through the first half of the European session on Tuesday, trading near the $3,230 level and within striking distance of the all-time peak reached the previous day. Growing concerns about economic repercussions from the rapidly intensifying US-China trade conflict continue to act as a primary driver supporting the safe-haven metal.
The trade tensions heightened significantly when China increased tariffs on US imports to 125% last Friday, responding directly to President Trump's decision to raise duties on Chinese goods to an unprecedented 145%. This reciprocal action has further fueled market uncertainty, keeping gold prices elevated near their historic highs reached on Monday.
Investors are particularly concerned about the US economy's vulnerability, as it still relies on numerous hard-to-replace materials imported from China. These developments have noticeably eroded confidence in US economic prospects, contributing to gold's appeal as a traditional safe harbor during periods of geopolitical and economic turbulence.
Gold (XAU) Strengthens on Federal Reserve Rate Cut Expectations
Market expectations that a tariff-driven economic slowdown might compel the Federal Reserve to implement more aggressive interest rate cuts in 2025 are providing additional support for the non-yielding gold price. The persistent bearish sentiment surrounding the US Dollar also contributes favorably to XAU/USD's performance.
Fed Governor Christopher Waller has expressed concerns that the Trump administration's tariff policies present a significant shock to the US economy that could potentially force the central bank to cut rates to prevent a recession. In a separate statement, Atlanta Fed President Raphael Bostic noted that while progress on inflation continues, tariffs could exert upward pressure on prices, and added that the Fed currently lacks flexibility to make dramatic policy shifts in either direction.
These statements from key Fed officials reinforce market expectations of at least three rate cuts in 2025, which traditionally benefits gold as lower interest rates reduce the opportunity cost of holding non-yielding assets like precious metals.
Gold (XAU) Rally Tempered by Temporary Tariff Exemptions
The positive market sentiment generated by President Trump's temporary tariff reprieve appears to be restraining gold bulls from establishing fresh positions and limiting further upside momentum for XAU/USD. The White House announced on Friday that smartphones, computers, and other electronics would temporarily be exempted from Trump's reciprocal tariffs, offering some relief to markets.
President Trump further stated on Monday that he was considering possible exemptions for the auto industry from the 25% tariffs, acknowledging that companies need additional time to transition to US-made parts. These temporary measures have provided some market stabilization, temporarily restraining gold's ascent.
However, Trump emphasized that these exemptions are only temporary and revealed plans to announce tariffs on imported semiconductors over the coming week. He also threatened to impose tariffs on pharmaceuticals in the "not-too-distant future." This continuing uncertainty, combined with the underlying bearish sentiment toward the US Dollar, continues to provide support for gold prices.
Gold (XAU) Outlook Remains Positive Amid Economic Data Focus
Traders are now turning their attention to Tuesday's US economic calendar, particularly the Empire State Manufacturing Index release. This data, along with ongoing trade-related developments, could influence the US Dollar and provide momentum to gold prices. However, market participants remain primarily focused on Federal Reserve Chair Jerome Powell's speech scheduled for Wednesday, which may offer insights into the future interest rate trajectory and significantly impact the non-yielding yellow metal.
The current technical and fundamental factors suggest that gold prices appear positioned to appreciate further, with a move toward retesting the all-time peak remaining a distinct possibility. The combination of safe-haven demand amid trade tensions, expectations for Fed rate cuts, and a weaker US Dollar creates a favorable environment for the precious metal.
As geopolitical tensions persist and monetary policy expectations evolve, gold continues to demonstrate its traditional role as both a safe-haven asset and an inflation hedge, attracting investors seeking stability in an increasingly uncertain global economic landscape.
Saad Ullah
