Gold continued its upward trajectory to $3,350 per ounce as investors seek refuge in safe havens amid escalating trade tensions and a weakening US dollar.

Going in the Right Direction

Gold prices have topped $3,350 per ounce in the wake of the ongoing trade war and in light of the White House's shifting stance on trade policy. Initially, gold prices fell as investors sold the precious metal to shore up their stock portfolios during the market rout. However, the 90-day moratorium on reciprocal tariffs restored market confidence, leading to a stock market surge - although levels remain far from highs scored earlier in the year. Nonetheless, the rise in gold prices suggests that liquidity concerns have eased for the time being, and traders can focus on the broader impacts of trade policy.

Earlier this week, some confusion arose when the White House clarified that some Chinese products would face tariffs as high as 245%. This was not a new escalation but rather an indication that the new tariffs would be applied on top of tariffs already imposed during the Biden Administration, some of which had already reached 100%. Consequently, a wide range of products now face a wide range of tariff rates, from 0% for children's books to 245% for certain medical products like syringes. This makes it challenging to assess the inflationary and economic impact these tariffs will have, particularly if negotiations lead to a reduction in tariffs within the next 90 days.

Negotiations Start, Prices Rise

Japan became the first major country to initiate talks about easing the trade war, with US President Donald Trump hailing "big progress" after personally meeting with Japanese trade representatives. However, the talks failed to reach a swift resolution, with parties agreeing to continue at a later date. The slow progress, coupled with ongoing tensions with China, a major trade partner, left markets uneasy overall, which affected the tech sector after Nvidia disclosed substantial costs due to export restrictions on semiconductors.

On Wednesday, Fed Chair Jerome Powell also issued a stark warning about the potential economic effects of changes in trade policy, leading to the possibility of inflation. While practically all FOMC members acknowledge the inflationary implications of tariffs, some believe the price effect will be transitory, while the impact on the economy will be more long-lasting. Powell's emphasis on the economic outlook suggests that the Fed might be inclined towards dovishness, as monetary easing is one way for policymakers to support growth. As for gold, generally lower rates tend to boost the price of the precious metal, as the market becomes increasingly convinced that there will be more rate cuts towards the end of the year.

Gold in Pullback Mode?

After a 5-wave move from $2950 to $3350, gold prices may be poised for a pullback towards $3250 and perhaps $3200. However, sliding to lower territories could form a reversal pattern instead, opening the door to levels under the $3000 mark. On the upside, if bulls scale up their bets, the next major resistance above $3400 lies at $3500.

Source: SpreadEx / Gold

Key Takeaways

Escalating trade tensions and a weaker dollar have fuelled demand for gold but the complexity surrounding tariffs and the slow progress seen in negotiations has left markets uneasy. In turn, this has prompted warnings from the Fed about potential economic impacts and inflationary pressures, which could influence future policy decisions and the prices of gold.