The gold price surged on Monday to an unprecedented level, with a rise in demand for safe havens.
The announcement was made after US President Donald Trump announced additional tariffs on imports of commodities.
Concerned about potential economic consequences of escalating tensions in trade, investors flocked towards gold, which they saw as an excellent store of value, and also a way to hedge themselves against volatility.
Gold’s appeal as a “safe-haven” asset was boosted by the new tariffs that could affect a variety of commodities and raw materials.
The move came after US President Donald Trump announced he’d announce “reciprocal duties” against many countries Tuesday or Wednesday. This has increased uncertainty on global financial markets, according to Filip Lagaart. He is the editor of FXstreet.
The April COMEX gold contract was trading at $2.928.89 an ounce as of the writing. This is up by 1.4% compared to the previous closing price.
In the previous session, this contract reached a high record of $2.937.51 per ounce.
Safe-haven demand
Gold prices have reached unprecedented heights since Trump announced on Sunday that all imports of steel and aluminium into the US will be subject to a 25% duty.
The decision raised concerns that it could lead to further barriers in the global trade.
Trump has also stated his intent to raise US import tariffs to equal those of its trading partners.
The announcement follows just a few days after Trump implemented his 10% tariffs against Chinese products, which led to retaliatory measures by Beijing.
Investors are flocking to gold as a safe haven due to the escalating tensions in trade between two of the largest economies on earth.
Yellow metal has traditionally been seen as an insurance against inflation and financial instability.
US inflation data awaited
The gold price has seen a significant increase and is now at record levels.
The strength of the US Dollar has slowed down the possibility for further increases.
The expectation of high US interest rates for the next few months has investors on edge.
Lagaart says:
The traders are also looking forward to Jerome Powell’s semi-annual testimony before lawmakers, which will take place on Tuesday and on Wednesday. This is a good time for them to get some new clues on the future of US monetary policies.
The US Consumer Price Index (CPI), or inflation rate, for January will be announced later this week. Economists and investors alike are anxiously anticipating the data.
The Federal Reserve is likely to use this data as a major indicator for the future US interest rates.
In an attempt to fight inflation, the Fed is raising interest rates. The January CPI will be carefully monitored for any signs that this effort has had an effect.
The Fed could be under pressure to raise interest rates aggressively if the Fed’s data indicates that the inflation rate is rising rapidly.
If the Federal Reserve is able to see that the inflation rate has moderated, they may be able to have more freedom in determining their interest rates.
Correction in sight?
Analysts predict that gold prices will soon correct themselves from their record-high levels.
David Morrison is a senior analyst with Trade Nation. He said that the daily MACD of gold (moving-average divergence, convergence, and price) has moved further into an overbought area, which suggests buyers need to exercise caution.
The US session today may see the gold market begin to price in Trump’s headline.
Lagaart says that the path to gold is obvious, and $3,000 will be here soon. However, a quick take-profit could be on its way, he warns.
Gold prices broke through the two first resistance levels Monday.
First, the price was set at $2.881 an ounce. The second level is $2.900.
The demand for safe-haven investments among investors is currently outweighing all fundamentals of the current market.
Gold has been steadily rising since December. “Traders have begun to recognize gold’s value as a store of wealth and a safe place, as threats of tariffs and countermeasures appear the norm,” Morrison said.
Barbara Lambrecht is a commodity analyst with Commerzbank AG. She said:
In turbulent political times, gold is considered a haven of safety. The sharp increase in leasing rates is another sign of tension on the physical market. We are still assuming that the market is exaggerating, but a possible correction may be a long way away.
The post Gold keeps hitting new record highs: Is a correction on the horizon? This post may change as new information becomes available
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