Gold price bulls not ready to give up despite overbought conditions; focus remains on US NFP
- Gold price continues to attract safe-haven flows on the back of trade war fears.
- Fed rate cut bets and depressed US bond yields also support the XAU/USD pair.
- Subdued USD price action favors bulls ahead of Friday’s crucial US NFP report.
Gold price (XAU/USD) sticks to its intraday gains through the Asian session on Friday and remains well within striking distance of the all-time peak touched earlier this week. Investors remain concerned about escalating US-China trade tensions and the potential economic fallout from US President Donald Trump’s aggressive trade policies, which continue to underpin the safe-haven bullion.
Apart from this, bets that the Federal Reserve (Fed) would stick to its easing bias keep the US Treasury bond yields depressed near their lowest level since December. This fails to assist the US Dollar (USD) in attracting any meaningful buyers and further lends support to the non-yielding Gold price. Traders now look forward to the release of the US Nonfarm Payrolls (NFP) report for a fresh directional impetus.
Gold price bulls have the upper hand amid US-China trade tensions, Fed rate cut bets
- China announced tariffs on some US goods in retaliation to US President Donald Trump's 10% levy on Chinese imports. This marks a new trade war between the world's top two economies and continues to underpin the safe-haven Gold price.
- On the economic data front, the US Department of Labor (DoL) reported on Thursday that the number of US citizens filing new applications for unemployment insurance rose to 219K for the week ending February 1, from the previous week's revised tally of 208K.
- US Treasury Secretary Scott Bessent said on Thursday that the Trump administration was not particularly concerned about the Federal Reserve's trajectory on interest rates and that the focus is on bringing down 10-year Treasury yields.
- The yield on the benchmark 10-year US government bond fell to its lowest level since December 12 earlier this week amid bets that the Federal Reserve will cut rates twice by the end of 2025, further benefitting the non-yielding yellow metal.
- Chicago Fed President Austan Goolsbee noted that the appearance that inflation has stalled is largely due to base effects and that the central bank needs to be mindful of overheating and deterioration, but things are largely going well.
- Dallas Fed President Lorie Logan said that inflation progress has been significant, but the US labor market remains far too firm to push the central bank into rate cuts any time soon. This, however, does little to impress the US Dollar bulls.
- Market participants now look forward to the US Nonfarm Payrolls report, which is expected to show that the economy added 170K jobs in January compared to 256K in the previous month and the Unemployment rate held steady at 4.1%.
- The crucial data will influence market expectations about the Fed's interest rate outlook, which, in turn, should play a key role in driving the USD demand in the near term and determining the next leg of a directional move for the XAU/USD.
Gold price technical setup warrants caution for bulls amid slightly overbought RSI
From a technical perspective, the overnight bounce and the subsequent move up on Friday validates the near-term positive outlook for the Gold price. That said, the Relative Strength Index (RSI) is flashing slightly overbought conditions on the day chart and warrants some caution for bullish traders. Hence, it will be prudent to wait for some near-term consolidation before positioning for an extension of the recent well-established uptrend from the December monthly trough.
In the meantime, the $2,855 horizontal zone, followed by the overnight swing low, around the $2,834 region, could offer some support to the Gold price ahead of the $2,815-2,714 region. This is followed by the $2,800 mark, which if broken decisively might prompt some technical selling and drag the XAU/USD towards the $2,773-2,772 resistance breakpoint. The latter coincides with the weekly low and a convincing break below should pave the way for a deeper corrective decline.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
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