• XAU/USD traders book profits as US Treasury yields decline further.
  • Trump’s tariff threats on Mexico and Canada fuel market uncertainty.
  • Weak US Consumer Confidence, layoffs raise stagflation fears.

Gold prices plummeted on Tuesday during the North American session as traders booked profits amid falling US Treasury bond yields. The Greenback also extended its losses as traders remained uneasy about United States (US) President Donald Trump's changing trade policies. XAU/USD trades at $2,905 after hitting a daily low of $2,888.

Uncertainty about US President Donald Trump's use of tariffs as a negotiation tool keeps traders risk-averse. On Monday, Trump hinted that tariffs on Mexican and Canadian imports will start next week, despite efforts made by both nations to fight fentanyl and illegal migration.

Data-wise, the Conference Board (CB) revealed that Consumer Confidence deteriorated. The report depicted Americans' pessimism due to the current controversial policies of the Trump administration. Additionally, unprecedented layoffs of federal workers are keeping consumers on the sidelines.

This report and last week’s University of Michigan (UoM) Consumer Sentiment fueled concerns about a stagflationary scenario in the United States.

This week, the US economic docket will feature Federal Reserve (Fed) speakers, Durable Goods Orders, the second reading of Q4 GDP, and the release of the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index.

Daily digest market movers: Gold and US Treasury yields plunge

  • The CB Consumer Confidence dropped to an eight-month low from 104.1 to 98.3 in February. It was the sharpest pace of deterioration in three and a half years. Consumers' inflation expectations average over 12 months jumped from 5.2% to 6%, revealed the Conference Board.
  • Richmond Fed President Thomas Barkin revealed that he’s taking a wait-and-see approach to adjusting interest rates until it becomes clear that inflation is moving lower to the Fed’s 2% goal.
  • Money markets had priced in that the Federal Reserve (Fed) would ease policy by 58 basis points (bps), up from 40 bps last week, revealed data from Prime Market Terminal.
  • The US 10-year Treasury note yield plunges ten basis points (bps) to 4.294% capping Bullion prices fall. US real yields, as measured by the yield in the US 10-year Treasury Inflation-Protected Securities (TIPS), edge lower six and a half bps to 1.907%.
  • Last week, Goldman Sachs upwardly revised Gold price projections to $3,100 by the end of 2025.
  • Money market fed funds futures are pricing in 50 basis points of easing by the Fed in 2025.

XAU/USD technical outlook: Gold price retraces towards $2,900

Gold prices fell on Tuesday, exposing the precious metal to heavy selling pressure, yet bears seem not to have the strength to achieve a daily close of XAU/USD below $2,900. If sellers achieve that outcome, the February 14 daily low of $2,877 will be exposed, followed by the February 12 swing low of $2,864. Despite this, the uptrend remains intact unless Gold falls below $2,800.

Conversely, if Bullion rises past the year-to-date (YTD) high of $2,956, the next resistance would be $3,000.

Risk sentiment FAQs

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

 

Source: Fxstreet