5 min readXAU/USD is extending its winning run for a fifth straight day, reaching a fifth consecutive all-time high of $2865 on Wednesday. Gold prices are bolstered by safe-haven demand amid concerns of a new trade war between the US and China and following weaker US data.
Trade war fears boost safe-haven demand
Fears of a full-blown trade war between the US and China have driven demand for safe-haven gold this week, whilst riskier assets like Bitcoin and stocks experienced high levels of volatility. President Trump paused trade tariffs on Mexico and Canada for one month; however, he pressed ahead with trade tariffs on China and said he was in no hurry to speak to President Xi Jinping to try and defuse trade tensions between the world’s two largest economies.
China has imposed targeted tariffs on US imports in a retaliatory move fueling worries of rising tensions. In times of geopolitical uncertainty,Gold often performs well. Furthermore, China may be encouraged to keep buying gold reserves if the trade war escalates.
The World Gold Council reported that central banks speed up gold purchases in the fourth quarter of 2024. The WGC report showed Gold demand reached a new record high in 2024 as central bank and particularly emerging market central bank demand drove the increase.
US data in focus
Meanwhile, weaker US data has also boosted Gold prices. The JOLTS jobs opening survey yesterday revealed a decline in job openings to 7.6 million in December, down from 8.1 million in the previous month, below expectations of 8 million. The drop in the actual number of job openings points to a slowdown in the jobs market. The data comes ahead of ADP private payroll figures later today and US nonfarm payrolls on Friday, which are expected to show that job creation slowed to 170K in January, down from 256K in December.
Signs of weakness in the jobs market could support expectations of further policy easing by the Federal Reserve. Despite persistent inflation, slowing jobs growth increases the likelihood of rate cuts from the Federal Reserve. Given that Gold is non-yielding, it performs better in a low-interest-rate environment.
The USD has also fallen to a weekly low following the weak data. Gold is USD denominated, so a weaker USD often lifts the price of Gold.
What next for Gold prices?
XAU/USD has broken out of a rising channel, reaching a record high of 2872 with strong bullish momentum. Bulls look to extend gains towards 2900 and 3000.
However, XAU/USD is overbought on multiple time frames, so buyers should be cautious. History tells us that when Gold is overbought, a period of consolidation or a correction lower often follows.
On the downside, support can be seen at 2790, the October high.
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