Gold prices (XAU/USD) reached a fresh 29-month high on Monday, rising to around $3,370 per ounce. The precious metal extended its winning streak for a fourth consecutive day, primarily driven by an escalation in global trade tensions after the United States imposed 30 per cent tariffs on imports from the European Union and Mexico over the weekend.
Theoretically, heightened global economic and geopolitical uncertainties typically boost demand for traditional safe-haven assets, with gold being a prime beneficiary. The recent tariff announcement by US President Donald Trump followed the expiration of a 90-day reciprocal tariff pause period with the EU and Mexico, without new trade agreements being struck.
Despite the initial market shock, European Commission President Ursula von der Leyen indicated that talks with Washington are ongoing, postponing plans for countermeasures until an August 1 deadline. She cautioned, however, that the trading bloc is prepared to announce proportionate retaliatory measures if necessary to safeguard its interests. This partial de-escalation contributed to a slight calming in markets, allowing the US dollar to regain some ground and leading to a pullback in gold from its session highs.
Rania Gule, senior market analyst at XS.com for MENA, observed that gold prices are currently navigating an extremely sensitive range, influenced by a complex mix of geopolitical tensions and economic concerns, making the metal a strong candidate for significant price action in the coming days.
Gule elaborated, “The recent movements in gold are merely a prelude to greater volatility likely to unfold as the U.S. inflation data release approaches. The market is extremely sensitive right now to any political or economic development, especially those tied to the U.S., China, and Europe, given the intertwining of trade and military files. Trump’s announcement of a potential 30% tariff on imports from the EU and Mexico — alongside tariff warning letters sent to around 20 countries — triggered a wave of panic that pushed investors toward safe havens, with gold at the top of the list.”
The immediate focus for market participants is the imminent release of the U.S. Consumer Price Index (CPI). Inflation figures remain the central variable steering the Federal Reserve’s monetary policy, directly impacting market sentiment towards safe-haven or risk-on assets. A hotter-than-expected inflation reading could lead to a scaling back of expectations for a September Fed rate cut, which would likely strengthen the US dollar and exert downward pressure on gold. Conversely, weaker inflation figures would boost the case for earlier rate cuts, providing strong support for the precious metal.
Analysts currently price in a total of 50 basis points (bps) in rate cuts by year-end, with about 60 per cent probability of the first cut occurring in September. “Any inflation surprise could significantly shift these expectations, making gold’s short-term outlook highly data-dependent,” Gule added.
From a technical perspective, gold is facing stiff resistance around the 23.6 per cent Fibonacci retracement level, near $3,377. This is identified by analysts as a critical barrier on the path towards the next major resistance at $3,499. A failure to breach this level could trigger a swift correction towards support zones at $3,300 and potentially $3,250. However, a successful breakout, potentially fuelled by disappointing economic data or renewed political tension, could pave the way for a strong rally towards $3,500.
Beyond economic data, underlying geopolitical risks continue to simmer. Recent developments, including North Korea’s pledge of unconditional support for Russia’s military operations in Ukraine and Trump’s announcement of plans to send Patriot missiles to Kyiv, suggest that geopolitical escalation could swiftly return to the forefront. Furthermore, unconfirmed reports circulating about Federal Reserve Chair Jerome Powell’s potential resignation add another layer of uncertainty, prompting investors to maintain a cautious stance.
Despite short-term volatility, the long-term outlook for gold remains favourable, supported by global liquidity dynamics and central bank behaviour. The increase in gold purchases by central banks over the past two years signals a gradual erosion of confidence in the current monetary system and a strategic step towards assets perceived to preserve long-term value. This trend, combined with potential US dollar weakness should anticipated rate cuts materialise, positions gold strategically well over the medium to long term.
“In conclusion, gold is at a critical juncture. While the medium-term uptrend remains intact, the short-term direction will largely depend on this week’s U.S. inflation figures and any unexpected geopolitical developments. Therefore, I recommend approaching gold with tactical caution, relying on strong technical signals backed by confirmed macroeconomic news before initiating any new investment decisions,” ,” Gule concluded.
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