Gold Rallies as Trade Uncertainty Weighs on US Dollar and Bond Yield

The announcement of tariffs on Canada and Mexico triggered a risk-off sentiment in financial markets. Investors sought safer assets as trade tensions escalated, causing a sell-off in equities. Gold (XAU) found strong support at $2,835 per ounce and rallied sharply to $2,915. The fear of an extended trade war in North America increased the demand for gold to hedge against economic instability.

The impact of tariffs on the auto industry and cross-border supply chains heightened inflation concerns. Higher vehicle prices and disrupted trade flow contributed to fears of rising costs. China’s retaliatory tariffs on US agricultural products further strained global trade. Historical data suggests that US farmers will bear the brunt of these tariffs, increasing financial stress. Moreover, the ISM manufacturing prices sub-index indicates the rising inflationary pressures supporting gold prices. A breakout above $2,950 could strengthen the case for a test of the $3,000 level.

On the other hand, the lower-than-expected January PCE inflation provided temporary relief in bond markets. 10-year Treasury yields declined toward key support at 4.1%, reflecting a cautious stance on inflation expectations. However, the Federal Reserve’s core PCE inflation measure remained at 2.60%, maintaining concerns about persistent inflation risks, as shown in the chart below.

If trade disruptions push inflation higher, the Fed may adopt a more hawkish stance, impacting the gold prices. The ongoing uncertainty surrounding tariffs and inflationary pressures positions gold for further gains.

Gold (XAU) Technical Analysis

Gold Daily Chart – Ascending Channel

The daily chart for gold shows that the price has found support at the midline of the ascending channel and is rebounding higher. This rebound in gold price has also led to a recovery in the RSI from the mid-level, indicating that this support level is strong. The strong price action over the past two days suggests the price is ready to move higher toward the $3,000 range. The NFP data on Friday will further influence gold prices.

Gold 4-Hour Chart – Broadening Wedge Support

The 4-hour chart for gold shows that the gold rebound from the support of a broadening wedge shows strong volatility. This rebound’s target is the wedge’s upper resistance around the $2,970 level.

Treasury Yields (TNX) Technical Analysis

10-Year Treasury Note Yield Daily Chart – 200-Day SMA Support

The daily chart for US Treasury yields shows that the price rebounded from the 4.10% support level, displaying positive momentum. Based on this positive development, a strong price action from the 4.10% level suggests that US Treasury yields may rise toward 4.50%. This rebound occurred as the RSI was oversold, indicating further upside potential.

10-Year Treasury Note Yield 4-Hour Chart – Rebound from 4.10%

The 4-hour chart for US Treasury yields shows that yields have found support around the 4.10% level and have subsequently initiated a rebound. Furthermore, the RSI indicates overbought conditions, which suggests that upward momentum may continue for US Treasury yields.

US Dollar (DXY) Technical Analysis

US Dollar Daily – Bearish Pressure

The daily chart for the US Dollar Index shows that the index continues to decline and has reached a strong support region around the 105 level. This support area aligns with the 200-day SMA. Based on the price action over the past two days, the index remains under bearish pressure, making further downside likely toward the 105 level. A break below 105 will open the door for an additional drop to 103.50.

US Dollar 4-Hour Chart – Descending Channel

The 4-hour chart shows the formation of a descending channel, where the recent rally initially found resistance at the ascending broadening wedge pattern and subsequently initiated a substantial drop. Moreover, a break from the ascending broadening wedge and the continuation of the descending channel trend clearly indicates bearish pressure. Consequently, this suggests that the index is likely to move lower.