(Kitco Commentary) - Gold futures have experienced significant gains recently, driven primarily by concerns over President Trump's newly implemented tariff policies and their potential economic impact. After a remarkable rally, recent price action suggests a correction may be on the horizon.
The administration's aggressive trade stance has now materialized into substantial tariffs affecting three of America's largest trading partners. The United States currently imposes a 25% import tariff on goods from Canada and Mexico, along with a 20% tariff on Chinese imports.
Investors are increasingly concerned that these substantial tariffs will drive up consumer prices and accelerate inflation. This apprehension has already pressured the U.S. dollar index lower against its basket of component currencies.
Multiple Factors Driving Gold's Ascent
The price surge in gold futures since December 18 reflects the cumulative impact of several simultaneous concerns. Geopolitical tensions in the Middle East and Ukraine, inflation pressures, growing U.S. fiscal debt, and implementation of Trump's tariff policies have all contributed to the market's movement. This combination of factors has propelled gold futures from approximately $2,620 to $3,065 this month—a remarkable 17% increase.
During this extended rally, only one significant price correction has occurred. From mid-December through late February, gold futures climbed steadily from $2,620 to approximately $2,972.
The correction began on Monday, February 24, with gold futures losing roughly 4.3% before finding support at $2,843 during the final week of February. This support level marked the end of the correction and the beginning of another rally phase.
Since late February, gold has gained approximately $217, representing a 7.64% advance. However, the last two trading days have shown signs of weakening momentum. Yesterday, the April futures contract declined by $4.70. Today, April gold lost $24.60, trading to a low of $3,004 before recovering to settle at $3,028.20.
Technical Analysis Indicates Potential Support Levels
Using Fibonacci retracement analysis from the recent low of $2,846 to the high of $3,036, several key support levels emerge. The first level to watch is the 23.6% retracement which occurs at $3,012. The next level is the 38.2% retracement at $2,980, followed by the 50% retracement at $2,955.
These technical levels may provide crucial support if the current price weakness continues, potentially marking entry points for investors seeking to capitalize on any temporary pullback in gold's overall upward trajectory. While the fundamental drivers behind gold's rally remain intact, the recent price action suggests market participants should be prepared for a potential correction. Such pullbacks are typical within longer-term bull markets and may present strategic opportunities for investors with a longer time horizon.
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