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• Gold prices rose on Wednesday as investors fear that Trump's tariff increases could result in trade war.
• Easing tensions in the Middle East after a ceasefire between Israel and Hezbollah dampened gold's appeal.
• The next barrier for gold prices on COMEX remains around $2,700 per ounce as market waits for US PCE data.

Gold prices remain supported on Wednesday amid concerns over a full-blown trade war between the US and China. 

US President-elect Donald Trump on Monday announced that he intended to impose 25% tariffs on goods from Mexico and Canada. 

Trump also said he will impose an additional 10% tariff on Chinese imports on an already proposed 60% tariff. 

Beijing could retaliate against the US with tariffs of its own. 

The prospect of another trade war between the world’s top two economies dampened risk-on sentiments, increasing safe-haven appeal of gold. 

At the time of writing, the December gold contract on COMEX was at $2,665.74 per ounce, up 0.8% from the previous close. 

Prices extended small gains from the previous session.

However, gold was down sharply from Monday, when it climbed over $2,730 per ounce. 

Most of the decline was due to a surging dollar, which weighed on investors’ sentiments.

Additionally, a ceasefire between Israel and Hamas, dragged on safe-haven demand for the metal. 

Analysts at ING Group, said in a note:

 

De-escalation of tensions in the Middle East could shave off some of the risk premium from the precious metals, although other factors including Russia-Ukraine tensions and Fed rate cuts remain supportive for the yellow metal.

Easing Middle East tensions

Safe-haven demand for gold was hit late on Tuesday after the incumbent US President Joe Biden announced that Lebanon-based Hezbollah and Israel agreed to a ceasefire. 

This was positive news for financial markets as demand for safe-haven assets declined. 

Easing tensions limited gold’s gains on Wednesday even as the market remained concerned about Trump’s tariff threats. 
 

Dovish Fed

The minutes from the US Federal Reserve’s last meeting showed that officials were divided over how much farther they might need to cut interest rates. 

The minutes also showed that Fed officials were not sure about the direction of the US economy. 

In the last couple of weeks, Fed officials have said that the central bank needed to be more “careful” with farther rate cuts as the economy remained resilient. 

According to the CME FedWatch tool, traders have priced in a 62.8% probability of the Fed cutting rates by 25 basis points in December. The bets were as high as 85% a couple of weeks ago. 

Source: CME Group

Gold prices have been struggling to hold on to gains as concerns over Trump’s expected expansionary policies could keep inflation high in the US.

This may also prompt the Fed to keep interest rates elevated for a long period. 
 

Technical forecast

Traders will now monitor the release of the US personal consumption expenditure data later on Wednesday. 

“The Fed’s preferred inflation gauge and the weekly Jobless Claims will help shape market expectations for future Fed rate cuts, impacting the USD and the non-interest-bearing Gold price,” Dhwani Mehta, analyst at Fxstreet, said in a report. 

The next resistance level for gold prices are currently at $2,700 per ounce and $2,721 per ounce, Mehta said. 

She noted:

 

Alternatively, the immediate support is at the previous day’s low of $2,605, below which a drop toward the 100-day SMA at $2,569 remains in the offing.

A sustained break below that level could challenge the November 14 low of $2,537.

Source: Fxstreet

“The sharp price decline (Monday) showed that gold is not completely immune to these developments once the support from geopolitical tensions diminishes somewhat,” Carsten Fritsch, commodity analyst at Commerzbank AG, said. 

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