Gold prices are on an upward trajectory, reflecting a four-day surge driven by investor concerns over U.S. President Donald Trump's impending trade tariffs. The focus of these tariffs is on key trading partners Mexico, China, and Canada. As the market braces for the economic repercussions, investors are closely observing U.S. labor data alongside statements from Federal Reserve policymakers. Meanwhile, the trade policies have sparked fears of a potential slowdown in economic growth.
The ascent in gold prices has been notable, with XAU/USD trading positively around the $2,820 mark. This increase is attributed to the inverse relationship gold shares with the U.S. Dollar and Treasuries. With President Trump's tariffs on China set to commence shortly, market participants remain vigilant. The yield on U.S. Treasury bonds has been rising due to risk-on flows, which might limit gold's potential gains. However, central banks worldwide continue to diversify reserves by purchasing gold, aiming to enhance economic strength and currency stability.
President Trump has temporarily halted tariffs on Mexico and Canada after reaching a border security agreement, which has offered some relief to jittery investors. This pause has temporarily boosted confidence in the markets. Nonetheless, as Mexico, China, and Canada made up 42% of total U.S. imports in 2024, any long-term trade disruptions could have significant consequences.
The release of various economic indicators adds another layer of complexity to the situation. The Institute for Supply Management's Manufacturing Purchasing Managers' Index outperformed expectations, climbing from 49.3 to 50.9 in January. Additionally, the Prices Paid Index rose from 52.5 to 54.9, while the Employment Index improved from 45.4 to 50.3, and the New Orders Index moved up to 55.1.
Amid these developments, market watchers are also factoring in aggressive rate cut bets by the Reserve Bank of Australia (RBA), which are negatively affecting the Australian Dollar. Lower interest rates tend to benefit gold, a yield-less asset, as they reduce the opportunity cost of holding non-yielding bullion.