The US Consumer Price Index (CPI) is projected to increase by 2.9% year-on-year in January, marking the highest yearly purchase since records began. In addition, the core CPI, which excludes volatile food and energy prices, is expected to rise at a 3.1% annual rate. These inflationary pressures are unfolding against the backdrop of President Donald Trump's trade tariffs and escalating global trade war fears, which serve as a catalyst for the safe-haven bullion. Moreover, President Trump has signaled potential additional tariffs on automobiles, pharmaceuticals, and computer chips, further influencing market sentiments.
The gold market experienced some fluctuations, with the overnight Relative Strength Index (RSI) on the daily chart prompting profit-taking around the gold price. Meanwhile, Federal Reserve Chair Jerome Powell's hawkish remarks have revived demand for the US Dollar (USD), which ticked higher in response. Powell described the US economy as strong overall, highlighted a solid labor market, and noted that inflation is easing but still remains above the 2% target.
Central banks, being the largest holders of gold, play a crucial role in these market dynamics. Emerging economies like China, India, and Turkey are swiftly increasing their gold reserves. In 2024, Mexico, China, and Canada accounted for 42% of total US imports. A strong USD typically suppresses gold prices, whereas a weaker USD can drive them upward. Central banks often diversify their reserves with gold to bolster the perceived strength of their economies and currencies.
The anticipation surrounding the upcoming release of US consumer inflation figures later this Wednesday adds another layer to this complex economic landscape. As investors and analysts await these figures, they continue to assess the interplay between inflationary pressures, trade policies, and currency dynamics.
Gold's role as a safe-haven asset remains significant amid these uncertainties. The global economic environment is shaped by both geopolitical tensions and monetary policies. Investors closely monitor these developments to navigate the shifting financial landscape.