Gold’s (XAU/USD) parabolic rally showed no signs of slowing down and lifted the price to a new record-high above $4,370 on Friday before correcting lower. Looking ahead, markets will remain focused on discussions surrounding the trade conflict between the United States (US) and China, as well as scrutinize the September inflation data from the US.
Gold remains the favorite safe-haven asset
Gold started the week on a bullish note and gained more than 2% on Monday as markets reacted to a potential re-escalation of the US-China trade conflict. US President Donald Trump said on Truth Social that they will impose 100% tariffs on Chinese imports, “over and above any tariff that they are currently paying,” citing China’s newly taken aggressive position on trade with the intent to impose large-scale export controls on “virtually every product they make.”
Late Monday, US Treasury Secretary Scott Bessent adopted a softer tone, saying that he believes China is open to discussions and that the 100% tariff doesn’t have to happen. Nevertheless, China’s Commerce Ministry responded and said that the US needs to correct its “wrong practices” as soon as possible and added that the US cannot have talks while threatening to intimidate and introduce new restrictions. Furthermore, US President Trump accused China of not buying soybeans from the US purposefully and said that they could terminate some trade elements as retribution. As markets remained risk-averse, Gold continued to push higher on Tuesday.
Meanwhile, Federal Reserve (Fed) Chairman Jerome Powell adopted a neutral tone in his speech before the National Association for Business Economics (NABE) Annual Meeting in Philadelphia on Tuesday. Powell acknowledged that downside risks to the labor market had risen, while noting that there was also a risk that the slow pass-through of tariffs could start to look like persistent inflation. “The future path of monetary policy will be driven by data and risk assessments,” he reiterated.
Although there were no fresh developments midweek, investors saw no reason to back away from the safe-haven Gold, given the uncertainty surrounding the US-China relations, the potential negative impact of the ongoing US government shutdown on the economy, and growing expectations for two more Fed rate cuts this year.
On Thursday, Gold rose nearly 3% and climbed above $4,300. Resurfacing fears over the lending practices of the regional banks in the US weighed heavily on Wall Street’s main indexes, allowing Gold to shine as the best refuge in the current market environment. Additionally, the sharp decline seen in US Treasury bond yields further boosted XAU/USD. The benchmark 10-year US T-bond yield broke below 4% on Thursday and touched its lowest level since early April.
As US stock index futures suffered heavy losses early Friday, Gold extended its upsurge toward $4,400. Later in the day, the modest recovery seen in US T-bond yields, and possibly profit-taking ahead of the weekend, triggered a sharp correction that saw the price return below $4,300.
Gold investors will assess US-China news, US inflation data
US Treasury Secretary Scott Bessent said last week that President Trump was still on track to meet with Chinese President Xi Jinping in South Korea later this month. As the key meeting approaches, headlines surrounding the US-China trade relations will be scrutinized by investors.
In case the US and China signal that they are willing to de-escalate the situation, markets could see that as an opportunity to book some more profits and open the door for a leg lower in Gold. On the other hand, investors are unlikely to steer away from Gold if sides cling to aggressive rhetoric and ramp up the conflict further.
The US Bureau of Labor Statistics (BLS) announced that it will publish the September Consumer Price Index (CPI) data on Friday, October 24, to be able to calculate the annual Social Security cost-of-living adjustment (COLA). Markets expect the core CPI, which excludes volatile food and energy prices, to rise 0.3% on a monthly basis. According to the CME FedWatch Tool, markets are currently nearly fully pricing in two additional 25 basis-points Fed rate cuts this year. A noticeable upside surprise in inflation, with a reading of 0.5% or higher, could cause investors to reassess the possibility of a rate cut in December, boosting the US Dollar (USD) with the immediate reaction. In this scenario, XAU/USD is likely to come under bearish pressure. Conversely, a reading at or below the market forecast should have little to no impact on the market pricing of the Fed rate outlook.
Investors will also pay close attention to developments surrounding the US regional bank loans and a potential increase in money market stress. Unless investors’ fears over a liquidity crunch ease, Gold could preserve its bullish momentum.
Gold technical analysis
It is a difficult task to analyze Gold from a technical perspective, given the fact that the daily, weekly and monthly timeframes all point to extremely overbought conditions. Additionally, setting bullish targets is another challenge because XAU/USD has set new record-highs for five consecutive days. Hence, round levels could be seen as potential profit-taking thresholds at $4,400, $4,500 and $4,600.
On the downside, the upper limit of a broken ascending channel could be seen as the first support level at $4,080 before $3,960 (20-day Simple Moving Average) and $3,800 (mid-point of the ascending channel).
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
