- Gold price consolidates in a narrow band on Wednesday amid mixed fundamental cues.
- A positive risk tone caps the XAU/USD, though sliding US bond yields lend some support.
- Traders also seem reluctant to place directional bets ahead of the FOMC policy decision.
Gold price (XAU/USD) struggles to capitalize on the previous day’s positive move and trades with a mild negative bias, just above the $2,760 level during the Asian session on Wednesday. A generally positive tone around the equity markets is seen as a key factor acting as a headwind for the safe-haven precious metal. The downside, however, seems limited amid a fresh leg down in the US Treasury bond yields, which cap the US Dollar (USD) recovery from over a one-month low and lends support to the non-yielding yellow metal.
Apart from this, concerns about US President Donald Trump’s tariff plans might contribute to limiting losses for the Gold price amid subdued US Dollar (USD) price action. Traders might also refrain from placing aggressive bets and opt to wait on the sidelines ahead of the key central bank event risk – the outcome of a two-day FOMC monetary policy meeting. The Fed’s rate outlook will play a key role in influencing the near-term USD price dynamics and determining the next leg of a directional move for the precious metal.
Gold price is underpinned by a positive risk tone; downside potential seems limited
- Calmer conditions across global markets dent demand for traditional safe-haven assets and fail to assist the Gold price to build on Tuesday’s positive move ahead of the key central bank event risk.
- The yield on the benchmark 10-year US government bond languishes near a one-month trough, capping the overnight US Dollar recovery and acting as a tailwind for the non-yielding yellow metal.
- Investors remain concerned about the potential economic fallout from US President Donald Trump’s plans to impose tariffs on imported computer chips, pharmaceuticals, aluminum, steel and copper.
- The move, aimed at pushing the companies to boost production in the US, could trigger a fresh wave of global trade wars and might continue to act as a tailwind for the safe-haven precious metal.
- Data released on Tuesday by the US Census Bureau showed that Durable Goods Orders declined 2.2% in December, compared to a 2% fall in November and market expectations for a 0.8% rise.
- Separately, the Conference Board (CB) reported that the Consumer Confidence Index dropped to 104.1 in January from 109.5 in the previous month and the Present Situation Index fell to 134.3.
- Meanwhile, the market focus remains glued to the Federal Reserve’s policy decision first meeting this year, which will drive the US Dollar demand and provide a fresh impetus to the XAU/USD.
Gold price bulls have the upper hand while above the $2,720-2,725 resistance breakpoint
From a technical perspective, the recent breakout through the $2,720-2,725 horizontal barrier and positive oscillators on the daily chart suggest that the path of least resistance for the Gold price remains to the upside. A subsequent move above the $2,772-2,773 area will reaffirm the constructive outlook and lift the XAU/USD beyond the $2,786 area, or the highest level since October 2024 touched last Friday, towards the all-time peak, near the $2,790 zone. Some follow-through buying, leading to a strength beyond the $2,800 mark, will be seen as a fresh trigger for bullish traders and pave the way for an extension of a well-established uptrend witnessed over the past month or so.
On the flip side, weakness below the $2,755-2,753 immediate support might continue to attract some buyers and remain limited near the weekly swing low, around the $2,730 area touched on Monday. Some follow-through selling below the $2,725-2,720 resistance-turned-support could pave the way for deeper losses and drag the Gold price to the $2,707-2,705 area en route to the $2,684 region.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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