The global gold market has been experiencing significant fluctuations amid rising trade tensions and economic uncertainties worldwide. The 14-day Relative Strength Index (RSI) for gold prices turned lower after nearing the overbought region, now hovering around 65. Despite this downturn, the leading indicator suggests that gold remains a viable dip-buying opportunity for investors looking to capitalize on market volatility. Meanwhile, mixed economic signals from major players like China and the United States continue to stir investor sentiment.
In an attempt to stabilize its economy, China introduced fresh stimulus measures. However, these efforts failed to bolster the Chinese-proxy Australian Dollar, which has struggled under weak NBS business PMIs and the looming threat of trade wars under a potential Trump 2.0 administration. The unexpected contraction in China's manufacturing sector further contributed to a risk-off environment, pushing investors toward safer assets like the US Dollar.
In Monday's Asian trading, the USD/JPY pair built on its recovery, rising above 155.50. This development comes as US President Donald Trump's advisers reportedly push for imposing a 25% tariff on Mexico and Canada by February 1. Such measures have revived fears of an intensified global trade war, boosting demand for the US Dollar as a safe-haven currency. These trade tensions were compounded by President Trump's decision to impose tariffs on Colombia, leading Colombian President Gustavo Petro to threaten his own counter-tariff of 50%.
The preliminary US Composite PMI Output Index fell to 52.4 in January, marking its lowest level since April. This decline adds to a series of disheartening economic indicators, reinforcing expectations for interest rate cuts in both the Eurozone and the United States this year. The poor US PMI data, combined with trade tensions, has added pressure on the Greenback, despite its haven status in turbulent times.
Gold prices recently achieved the symmetrical triangle target, recorded at $2,785 on Friday. However, it failed to secure a daily candlestick closing above this level. For gold prices to establish a new record high above $2,800, it must first achieve a daily closing above $2,790. The resurgence in demand for the US Dollar as a haven currency has capped the upside in USD-denominated gold prices.
The US PMI statistics have been particularly influential in shaping market expectations. The data reinforced predictions of two Federal Reserve interest rate cuts this year despite their negative implications for the Greenback. This expectation aligns with similar sentiments within the Eurozone, where capital market participants are also bracing for potential rate cuts.
The January official purchasing managers’ index (PMI) from China came in at 49.1, falling short of the estimated reading of 50.1. This miss highlights ongoing struggles within China's manufacturing sector and underscores broader economic challenges facing global markets.