Gold is holding on to intraday gains above $2,725, above a two-month high amid trade war fears

• Gold price is gaining strong positive momentum amid the flight to safety following Trump’s tariff comments.
• Bets on further Fed rate cuts weigh on US bond yields and support the yellow metal further.
• The modest recovery in the US dollar, coupled with a positive risk tone, limits further gains for this commodity.

Gold price (XAU/USD) is based on an overnight bounce from the $2,689 area and is gaining some positive momentum for the second day in a row on Tuesday. US President Donald Trump’s comments on tariffs boosted demand for traditional safe haven assets and pushed the commodity to its highest level since November 6, around the $2,729 area. Aside from this, falling US Treasury yields, led by bets that the Federal Reserve (Fed) will cut interest rates twice this year, turned out to be another factor supporting the low-yielding yellow metal.

Meanwhile, expectations that Trump’s protectionist policies will reignite inflationary pressures and force the Fed to stick to its hawkish stance are helping the US dollar achieve a modest rebound from the two-week low it reached on Monday. This, along with the generally positive tone in stock markets, contributes to limiting any further rise in the price of gold. However, the fundamental backdrop appears to be strongly tilted in favor of bullish traders and suggests that the path of least resistance for XAU/USD remains to the upside.

The gold price maintains a positive bias amid trade war fears and Fed rate cut bets

• US President Donald Trump said on Tuesday that he intends to impose 25% tariffs on Canada and Mexico, and that the target date for imposing the tariffs will be early February. Trump also threatened to potentially impose tariffs on China if it does not approve the TikTok deal, boosting demand for the safe-haven price of gold.
• The US Producer Price Index (PPI) and Consumer Price Index (CPI) released last week indicated signs of declining inflation. This suggests the Fed may not rule out the possibility of cutting interest rates by the end of this year and pull the yield on benchmark 10-year US government bonds to their lowest level in nearly three weeks.
• The US dollar is regaining positive momentum after falling overnight to a two-week low on expectations that Trump’s protectionist policies could boost inflation and force the Federal Reserve to stick to its hawkish stance. This, in turn, may limit any further gains for the non-yielding yellow metal.
• The ceasefire agreement between Israel and Hamas, along with hopes that Trump will ease restrictions imposed on Russia in exchange for reaching an agreement to end the Ukrainian war, remains supportive of the positive risk tone. This may prevent bulls from placing new bets on the XAU/USD pair in the absence of any relevant US economic data.
• The market’s focus will remain on the Bank of Japan’s crucial policy meeting on January 23-24 on Friday. Aside from this, the release of flash Purchasing Managers’ Index (PMI) readings, which will be looked at for a fresh insight into the health of the global economy, should trigger volatility around the commodity during the latter half of the week.

Accepting the gold price above the $2,720 barrier favors bullish traders

From a technical perspective, it appears that the gold price has now found acceptance above the $2,720 supply zone. Moreover, the oscillators on the daily chart are gaining positive momentum and are still far from the overbought zone. This in turn favors bullish traders and indicates that the path of least resistance for XAU/USD is to the upside. Hence, some follow-through strength towards the next relevant hurdle near the $2735 horizontal area, on the way to the $2746-2748 area, seems like a distinct possibility. Momentum could extend further towards challenging the all-time peak, around the $2,790 area reached in October 2024.

On the flip side, any corrective pullback now seems to find good support near the $2,700 mark. A subsequent decline below the overnight swing low, around the $2,689 area, could trigger some technical selling and pull the gold price towards the $2,662-2,660 area. The latter should act as a pivot point, below which XAU/USD could fall to the $2635 area on its way to the $2618-2622 confluence – which includes a short-term uptrend line extending from the low in November and the 100-day exponential level. Moving Average (EMA).