Gold prices drop as the US Dollar gains strength following Trump’s congressional address.

Gold Prices Dip as US Treasury Yields Rise, but Safe-Haven Demand Looms Amid Trade Tensions

Gold prices (XAU/USD) broke their two-day winning streak on Wednesday, pressured by rising US Treasury yields that weighed on non-yielding assets. However, the ongoing trade war and escalating geopolitical tensions could fuel safe-haven demand for the precious metal.

Gold Faces Pressure from Rising Treasury Yields

The US Dollar Index (DXY) climbed to around 105.70 as US bond yields surged, with 2-year and 10-year yields reaching 3.98% and 4.25%, respectively. Stronger yields often reduce the appeal of gold, which doesn’t offer interest. Despite this, the USD faced downward pressure due to concerns over economic growth and the potential impact of tariffs on the US economy.

Trump’s Tariff Hikes Spark Global Trade War Concerns

The US has officially implemented a 25% tariff on imports from Canada and Mexico, alongside a duty increase on Chinese goods to 20%. In response, Canada confirmed retaliatory tariffs on US imports, while China announced additional tariffs of up to 15% on key US farm products. These developments have raised fears of a prolonged global trade war, which could dampen market sentiment and boost gold’s appeal as a safe-haven asset.

Interestingly, US Commerce Secretary Howard Lutnick suggested that President Trump may reconsider his tariff stance just 48 hours after enforcement. However, reports from the New York Times indicate that Trump has privately signaled his intention to maintain the tariffs.

Geopolitical Tensions Bolster Safe-Haven Demand for Gold

Adding to the uncertainty, the US temporarily paused military aid to Ukraine, grounding all military equipment, including weapons in transit. This move intensified tensions between President Trump and Ukrainian leader Volodymyr Zelenskyy amid ongoing peace negotiations.

The combination of trade disputes and geopolitical risks may limit deeper losses for gold, as investors seek refuge in the precious metal.

US Economic Data Raises Further Concerns

The latest ISM Manufacturing PMI for February dropped to 50.3 from 50.9 in January, while the Prices Paid Index surged to its highest level in nearly three years. The market remains cautious about the impact of rising tariffs on consumer spending, which could weaken the economic outlook and further support gold prices.

Key Takeaways for Gold Traders

• Gold price (XAU/USD) dips due to rising US Treasury yields.
• Trade war fears escalate as the US, Canada, and China impose fresh tariffs.
• US military aid pause to Ukraine adds to geopolitical uncertainty.
• Economic concerns over tariffs may limit downside risks for gold.

With growing market uncertainty and global trade tensions, gold may regain upward momentum as a safe-haven asset, despite short-term pressure from stronger yields.

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