Gold prices rose on Wednesday, reaching new highs, as geopolitical concerns and trade tensions between the United States and China escalated.
Safe-haven assets have risen since U.S. President Donald Trump began imposing tariffs on a number of countries last month.
Gold prices have already risen more than 8% so far this year, and on Tuesday spot gold added another 1% early in the session to reach a new record high of $2,869.68 an ounce.
Over the weekend, Trump announced a 10 percent tax on Chinese imports, which will take effect on Monday. Beijing, which initially urged Washington to enter negotiations, responded by imposing tariffs of 15 percent on coal and liquefied natural gas products, as well as 10 percent on crude oil, agricultural machinery and large-engine cars imported from the United States. These fees are not scheduled to take effect until February 10, but this has not stopped investors from switching to gold.
Trump’s overnight comments on Gaza have boosted investors’ flight to safety, stunning markets and raising fears of further conflict in the Middle East.
At a White House news conference alongside Israeli Prime Minister Benjamin Netanyahu, Trump said the United States must “take over” the devastated Gaza Strip and its Palestinian population must be resettled. Hamas and Saudi Arabia condemned the proposal.
It’s likely there will be “some new geopolitical premium being priced in the metal” in the wake of Trump’s comments.
Ipek Ozkardiskaya, an analyst at Swissquote, said: “Safe havens continue to see an increase in demand against the backdrop of growing global uncertainty under Trump’s feverish leadership, and with the prospect that the first weeks under Trump are only a prelude to what may come in the next four years.
Gold rises as trade and economic tensions escalate
Gold jumped 1% in early Wednesday trading, reaching a record high of $2869.68 before retreating slightly. U.S. gold futures rose 0.7% to $2,895 as escalating tensions between the U.S. and China pushed investors toward safe-haven assets.
China has retaliated against newly imposed U.S. tariffs with a range of trade restrictions of its own, raising fears of a protracted economic standoff. President Donald Trump has stated that he is in no hurry to negotiate with Chinese President Xi Jinping, suggesting that tensions may continue. The renewed trade war has heightened concerns about inflation and potential recession risks, pushing gold prices higher as trader’s hedge against economic uncertainty.
Fed caution and inflation concerns
Three Fed officials warned this week that escalating tariffs could increase inflationary pressures. One policymaker suggested that uncertainty about inflation trends might justify a more conservative approach to cutting interest rates. Traders are keeping a close eye on economic data releases, including the ADP employment report and upcoming payroll figures, for more clues on the Fed’s interest rate trajectory.
Gold, traditionally seen as a hedge against inflation, benefits from rising consumer prices. However, higher interest rates may limit further gains by increasing the alternative cost of holding non-yielding assets such as bullion. The market remains sensitive to any signals from the Fed regarding its stance on inflation and monetary policy.
There’s no better hedge than gold to protect the portfolio from Trump’s concerns: the more chaotic international relations become, the greater the demand, especially from central banks seeking to reduce exposure to the U.S. if Trump shifts his focus on it.”
Tony Redondo, founder of the Cosmos currency exchange, said investors were looking for safety amid “market uncertainty, geopolitical risks and Trump’s policies.”
Bond market movements as traders await jobs data
The 10-year Treasury yield fell by 3 basis points to 4.478%, while the two-year yield fell to 4.193%, reflecting growing caution among bond investors. The bond market moves are in line with expectations for key employment data later this week, which will provide insight into the strength of the US labor market.
Fed Vice President Philip Jefferson stated that policymakers should carefully assess economic conditions before adjusting interest rates. While inflation is gradually declining, the Fed remains vigilant, especially as trade tensions introduce new economic risks.
The RSI of gold has reached 76, which is well above the 70 threshold indicating overbought conditions. While further rally remains possible, traders should be wary of a possible pullback. A strong market rally leaves room for profit-taking, especially if upcoming economic data supports a tighter stance from the Fed.
According to the World Gold Council, global gold demand rose 1% to a record 4,974.5 metric tons, driven by increased investment activity and purchases from central banks in the fourth quarter. This strong backdrop of demand provides long-term support for gold, even as short-term price movements remain volatile.
Gold Souk Overview
While gold remains on an uptrend, current overbought conditions and variable interest rate expectations pose risks of a short-term correction. Traders should keep an eye on potential repercussions, especially if upcoming US economic data points to labor market resilience, which could strengthen the dollar and weigh on gold.
In the absence of any unforeseen geopolitical events, gold could experience a temporary pullback before resuming its broader uptrend. However, ongoing trade tensions and inflation concerns continue to support gold’s appeal as a hedging tool, keeping the metal well positioned for future gains.
