Gold Price Bulls pause as USD rises and Market reaches overbought levels

Gold prices continued their consolidation into the European session on Thursday, holding near the all-time high reached the previous day. Ongoing concerns about a US-China trade war and the potential economic fallout from President Trump’s tariffs continue to support the safe-haven gold. Additionally, expectations of further Federal Reserve interest rate cuts in 2025 and the recent decline in US Treasury yields provide extra support to gold.

However, a generally positive tone in equity markets has limited new bullish bets on gold, especially as the commodity shows slightly overbought conditions on the daily chart. A modest rebound in the US Dollar from a one-week low on Wednesday also caps gold’s upside. Despite this, the overall market sentiment suggests gold’s price is more likely to continue rising. Any pullbacks are seen as potential buying opportunities.

The trigger for the latest surge in gold prices came from the introduction of new 10% tariffs by President Trump on Chinese imports, effective Tuesday. In retaliation, China imposed tariffs on certain US goods, escalating fears of a trade war. This drove gold prices to a fresh record high. Meanwhile, US employment data showed that private-sector jobs grew by 183K in January, a slight increase from the previous month. However, the disappointing US ISM Services PMI reading of 52.8 in January tempered expectations.

The drop in US Treasury yields to their lowest point since mid-December, in response to the weak data, further fueled gold’s rally. Additionally, the prospect of the Federal Reserve cutting borrowing costs twice in the coming months weighed on the US Dollar, benefitting gold. Treasury Secretary Scott Bessent highlighted the focus on reducing 10-year Treasury yields, rather than short-term interest rates, which further added to gold’s appeal.

Despite hawkish remarks from Fed Vice Chair Philip Jefferson, who indicated he is content with current interest rates, the US Dollar remained weak. Investors are now awaiting the US Nonfarm Payrolls report on Friday for further insights into the Fed’s future actions. In the meantime, traders will look at the weekly US Jobless Claims data.

From a technical standpoint, gold’s Relative Strength Index (RSI) has surpassed the 70 mark, signaling caution for bullish traders. It might be wise to wait for consolidation or a pullback before positioning for further gains. However, the breakout through key resistance levels suggests that gold’s long-term trend remains bullish.

Any short-term pullback is likely to find support near the $2,855-$2,850 range. If this level fails, gold could slide towards the $2,810-$2,800 area. Below that, the $2,773-$2,772 support zone might act as a final buffer, with a break below this level potentially triggering deeper losses.