The trade war between the United States and China, which escalated significantly after US President Donald Trump won the election in November 2024, had profound implications for global markets, including gold prices.
Tariffs, economic uncertainty, and shifts in global trade policies created an environment in which gold, traditionally viewed as a safe-haven asset, could experience significant fluctuations.
Undoubtedly, gold traders look anxious to know how this tariff trade war between the US and China will impact gold prices, and why the metal became a critical investment vehicle during this period.
Upon analyzing the movements of the gold futures in the daily chart, I anticipate that the gold futures could see more exhaustion since President Trump could remain aggressive to compel the Fed’s members to keep the interest rates high to strengthen the US Dollar.
However, the upside in gold futures is likely to be capped, after testing a new high at $2872 on Feb. 3, 2025, followed by the selling sprees look evident enough to cap the upside, despite a surge in tariff tussles between the US and China.
On Tuesday, after President Donald Trump’s move to impose 10% trade tariffs against China, Beijing also announced a slew of retaliatory measures.
Undoubtedly, these retaliatory measures pointed to the start of a renewed trade war between the world’s biggest economies, with investors now bracing for further escalation, given Trump’s hawkish stance against Beijing.
The Federal Reserve officials have warned that increased U.S. tariffs, which will be borne by U.S. importers, are likely to factor into higher inflation and slower economic growth in the coming months.
However, the Fed is likely to rethink any future interest rate cuts in the face of stick tariff-linked inflation, and the uncertainty about Trump’s economic policies, which mostly favor higher interest rates, could keep gold prices under bearish pressure.
Moreover, with any hike in interest rates in the near period, gold futures will likely see a surge in bearish pressure as the higher interest rates diminish the shine of this non-yield asset even in case of a higher uncertainty as seen during the pandemic time in 2020 when the gold prices tested the lowest level at $1450 on Mar. 16, 2020.
Take Away for the Traders
I anticipate that the surging uncertainty could generate extreme volatility in gold futures, which will provide a good opportunity to trade but the risk will also be high. Immediate resistance for the gold futures is at $2894 and the second resistance will be at $2929.
In reverse, immediate support is at the 9 DMA at $2807 while the next support will be at 20 DMA at $2758, and a breakdown below the significant support at 50 DMA at $2695 could be disastrous for the gold bulls.
Undoubtedly, a sharp reversal will be seen if the gold futures try to test the 2000 DMA at $2537 but a breakdown below this significant support could generate a fresh selling spree in gold futures.
Disclaimer: Readers are advised to have a vigilant eye over the span of this trade war between the US and China amid growing uncertainty over the Fed’s stances during the upcoming week. Readers are advised to create any position in gold as this analysis is only based on the observations.