The global economic landscape remains fraught with tension as geopolitical factors and economic data converge to impact financial markets. The Institute for Supply Management's (ISM) Manufacturing PMI slipped to 50.3 in February from 50.9 in January, reflecting a softening manufacturing sector. Meanwhile, the Prices Paid Index surged to a nearly three-year high, raising concerns over rising costs due to new import duties. As Canada prepares to impose retaliatory tariffs on U.S. imports, the international trade environment grows increasingly complex.
U.S. President Donald Trump's tariffs on Mexico and Canada take effect this Tuesday, alongside a new 10% levy on Chinese goods. These measures are intensifying the U.S.-China trade war, overshadowing stable Australian Retail Sales figures. The ongoing trade tensions have also been compounded by the Ukrainian President Volodymyr Zelenskiy's meeting with Trump, which ended poorly on Friday, adding further uncertainty to the geopolitical climate.
Gold prices, which typically have an inverse correlation with the U.S. Dollar and U.S. Treasuries—both major reserve and safe-haven assets—are feeling the pressure. Central banks worldwide have been increasing their gold reserves, with 1,136 tonnes worth approximately $70 billion added in 2022, marking the highest yearly purchase since records began. Despite this, gold prices (XAU/USD) struggled to build on the previous day's gains near the $2,900 mark and faced selling pressure during the Asian session on Tuesday.
The strong U.S. Dollar continues to keep gold prices in check, while a weaker Dollar could potentially drive prices upward. Bulls are likely to wait for sustained strength and acceptance above the $2,900 threshold before placing fresh bets. Market participants remain focused on the upcoming release of the U.S. monthly employment data, known as the Nonfarm Payrolls (NFP) report, scheduled for Friday. This report is expected to provide further insights into the U.S. economic outlook and could influence gold price movements.
Central banks from emerging economies such as China, India, and Turkey are rapidly increasing their gold reserves, underscoring a global trend towards diversifying away from traditional reserve currencies. As these countries adjust their monetary policies in response to global uncertainties, gold remains a critical component of their financial strategies.