Gold prices surged by over 1% on Monday, propelled by US President Donald Trump's announcement that it was too late for China, Mexico, and Canada to avoid impending tariffs. The confirmation of a 25% import tariff on Canada and Mexico has triggered market jitters, with investors turning to gold as a safe-haven asset. As the trade war escalates, the precious metal continues its upward trajectory, reaching new heights in the European market on Tuesday.
The market dip is intricately linked to President Trump's enforcement of the 25% import tariffs on goods from Canada and Mexico. In retaliation, Canada announced its own set of 25% tariffs to be imposed starting Tuesday. Meanwhile, China plans to levy 15% tariffs on US agricultural products from March 10. These developments have intensified fears of a prolonged trade war, causing significant ripples across global markets.
In the early hours of Asian trading on Tuesday, the US 10-year Treasury yield dipped to 4.11%. This decline reflects heightened concerns among investors, who are seeking refuge in more stable assets such as gold. Historically, gold has played a crucial role as a store of value and a medium of exchange, making it an attractive option during times of economic uncertainty.
Central banks worldwide have been known to diversify their reserves by purchasing gold. This strategy aims to bolster the perceived strength of their economies and currencies. Gold's inverse correlation with the US Dollar and US Treasuries further cements its status as a major reserve and safe-haven asset. Central banks remain the largest holders of gold, underscoring its continued relevance in global finance.
On Tuesday, gold prices continued their ascent, reaching a fresh daily high of approximately $2,918-$2,919 during the first half of the European session. The precious metal's steady intraday rise is supported by key technical levels. The daily Pivot Point at $2,879 and the daily R1 resistance at $2,903 have provided substantial support, enabling bullion to maintain its upward momentum.
Amidst this trend, the daily S1 support at $2,866 converges with last Thursday's low, while the daily S2 support at $2,842 is poised to absorb any additional downward pressure. At the time of writing on Tuesday, gold (XAU/USD) trades around $2,910, building on its impressive performance from the previous day.
The recent surge in gold prices has been fueled by rising fears of a US recession, which has contributed to a decline in the US Dollar. This decline has further underpinned gold's rebound despite mounting trade war tensions. Current market odds suggest an 85.6% likelihood of this trend continuing, with only a minor 14.4% chance for rates to remain unchanged.