Gold Struggles Below $2,900 Amid Trade War Fears and Fed Policy Uncertainty.
Gold (XAUUSD) continues to hover below the critical $2,900 mark, reflecting a mix of bearish pressure and underlying safe-haven demand. The yellow metal faces downward pressure due to expectations that the Federal Reserve (Fed) will maintain higher interest rates for longer. However, growing concerns over trade war tensions and geopolitical risks are keeping gold’s losses in check.
The current gold price movement suggests that while bears are in control, they lack strong conviction. Investors appear hesitant to take aggressive positions ahead of key macroeconomic events, particularly the US Nonfarm Payrolls (NFP) report set to be released on Friday. This data could provide fresh direction for the US Dollar (USD) and gold, determining whether XAUUSD extends its decline or finds renewed buying interest.
Gold Price Struggles Amid Fed’s Hawkish Policy Outlook.
One of the main factors pressuring gold is the Fed’s monetary policy stance. The market remains cautious amid expectations that the central bank will keep interest rates elevated in an attempt to curb inflation. Higher interest rates increase the opportunity cost of holding non-yielding assets like gold, making the metal less attractive to investors.
Recent US economic data has reinforced the idea that inflationary pressures remain a concern. The Institute for Supply Management’s (ISM) Manufacturing PMI slipped to 50.3 in February, down from 50.9 in the previous month. However, the Prices Paid Index, which tracks input costs for businesses, jumped to a near three-year high, signaling inflationary concerns.
Investors are closely watching these inflation trends because they could influence the Fed’s decision-making. If inflation remains stubbornly high, the central bank may be forced to extend its hawkish stance, which could further weigh on gold.
Trade War Concerns Offer Support to Gold
Despite gold’s bearish bias, growing trade war fears are helping to limit deeper losses. The latest round of trade tariffs imposed by former US President Donald Trump has triggered retaliatory measures from key trading partners, increasing global economic uncertainty.
Trump’s new tariffs include:
Tariffs on Mexico and Canada: Effective Tuesday, these duties target various goods, raising concerns about North American trade relations.
A 10% tariff on Chinese goods: This move has sparked an immediate response from China.
Retaliatory tariffs: Canada has confirmed that it will impose retaliatory tariffs on US imports. Meanwhile, China’s Commerce Ministry has announced additional tariffs of up to 15% on key US farm products.
The escalating tit-for-tat tariffs are fueling concerns that a full-blown trade war could hurt global economic growth. Historically, such uncertainties have driven investors toward safe-haven assets like gold. If tensions escalate further, XAUUSD could find renewed demand as investors seek protection from market volatility.
Impact on the US Dollar and Its Role in Gold’s Movement
The US Dollar plays a crucial role in determining gold’s trajectory. When the USD strengthens, gold tends to weaken as it becomes more expensive for holders of other currencies.
Currently, the USD has seen a modest uptick due to expectations that the Fed will keep rates higher for longer. Additionally, the safe-haven appeal of the dollar has increased due to global economic uncertainty and geopolitical risks. However, if the trade war situation worsens, investors may shift their preference toward gold instead of the USD, leading to a potential rally in XAUUSD.
Geopolitical Risks Add Another Layer of Uncertainty.
Apart from trade war concerns, geopolitical tensions are also influencing gold prices. One of the most significant developments is the recent diplomatic friction between the US and Ukraine. Ukrainian President Volodymyr Zelenskiy’s meeting with Trump reportedly ended in disaster, adding uncertainty to US-Ukraine relations.
Furthermore, a White House official confirmed that the US has paused military aid to Ukraine. This decision has raised concerns about Washington’s commitment to supporting Ukraine, which could have broader geopolitical implications. Investors tend to flock to gold in times of geopolitical uncertainty, which could provide a cushion against any aggressive downside moves in XAUUSD.
Market Awaits Key US Economic Data: The Nonfarm Payrolls Report
While gold remains under pressure, traders are holding off on making large bets ahead of Friday’s Nonfarm Payrolls (NFP) report. This key employment data release is closely watched by market participants because it provides insights into the health of the US labor market and potential Fed policy moves.
A strong NFP report—indicating robust job growth—could reinforce the Fed’s hawkish stance, boosting the USD and putting additional pressure on gold. On the other hand, if the data disappoints, investors might scale back expectations for prolonged higher interest rates, potentially leading to a gold rebound.
Technical Analysis: Key Levels to Watch for Gold
From a technical standpoint, gold’s inability to sustain gains above $2,900 suggests that bullish momentum is fading. However, the downside remains cushioned due to trade war fears and geopolitical uncertainties.
Key Support Levels:
$2,850: This level has acted as strong support in recent sessions. A break below it could trigger a deeper decline.
$2,800: A psychological level that could attract buyers if gold extends its drop.
Key Resistance Levels:
$2,900: Gold needs to reclaim this level to regain bullish momentum.
$2,950: A break above this resistance could open the door for a retest of $3,000.
Potential Scenarios for Gold in the Coming Days
Scenario 1: Bearish Continuation
If the NFP report is strong and inflation remains elevated, the Fed could stay on its hawkish course.
The USD would likely strengthen, putting downward pressure on gold.
In this case, gold could drop toward $2,850 or lower.
Scenario 2: Bullish Rebound
If trade war fears escalate or the NFP report disappoints, gold could find renewed safe-haven demand.
A weaker USD could further support XAUUSD.
In this scenario, gold could reclaim $2,900 and test higher resistance levels.
Conclusion: Caution Prevails as Gold Awaits Key Catalysts
Gold remains in a delicate balance, with both bearish and bullish factors at play. On the one hand, expectations of prolonged higher interest rates and a modestly stronger USD are weighing on XAU/USD. On the other hand, trade war fears and geopolitical risks are offering support, preventing a steeper decline.
The market’s hesitation suggests that traders are awaiting a clearer catalyst, likely in the form of Friday’s NFP report. A strong jobs report could reinforce the Fed’s hawkish stance, pressuring gold further. However, if economic uncertainty continues to grow due to escalating trade tensions and geopolitical risks, XAUUSD could see renewed demand.
For now, caution remains the dominant theme, with investors keeping a close eye on upcoming economic data and trade developments. Gold’s next big move will likely depend on how these factors unfold in the coming days.
