Gold drops as next step in Trump’s tariffs strategy unravels

• Gold dips lower on Monday after a turbulent weekend on tariffs and deportations. 
• US yields slide further as traders look for safety. 
• Gold fades just ahead of a fresh new all-time high. 

Gold’s price (XAU/USD) slips below $2,760 at the time of writing on Monday after a headline-filled weekend and a busy week regarding the central bank's rate decision ahead. Over the weekend, markets understood why United States (US) President Donald Trump has eased on using tariffs as a tool. It appears that tariffs will be used as leverage, for example, for countries that refuse to accept deported US immigrants who are being brought back to their country of origin. 

Columbia got a taste of the playbook on Sunday when President Trump ordered 25% emergency tariffs, and an increase to 50% in a week, as the country did not comply with President Trump’s deportation demands. However, the White House later confirmed that “Colombia has agreed to all of President Donald Trump’s terms, including unrestricted acceptance of all illegal aliens from Colombia returned from the US,” and Trump’s proposed tariffs were “now on hold.”

Later this week, the Federal Reserve (Fed) and the European Central Bank (ECB) will decide on policy rates on Wednesday and Thursday, respectively. 

Daily digest market movers: The playbook revealed

• Gold’s outlook remains positive on strong demand from central banks, with the precious metal’s reputation as an alternative reserve asset continuing to attract investors, according to Kotak Securities Ltd, Bloomberg reports. 
• Gold dipped, as the US Dollar (USD) rose after President Donald Trump held off from imposing threatened tariffs on Colombia as the two countries reached a deal on the return of deported migrants, Reuters reports. 
• The CME FedWatch tool projects no change in the policy rate for the upcoming Federal Reserve rate decision. Going forward, the May rate decision has a 43.8% probability of a 25 basis point rate cut compared to 45.4% for no change. 

Technical Analysis: Hitting the ceiling

Gold’s price rally stalls and looks to be hitting a curb this Monday after President Donald Trump demonstrated during the weekend how and when tariffs will be used. This was enough to trigger some panic in markets, as it became clear that President Trump is not easing at all on tariffs. Meanwhile, Gold had hit overbought levels in the Relative Strength Index (RSI) indicator in the daily chart, and could see some more selling pressure as of now. 

The first line of support remains at $2,721, a sort of double top in November and December broken on January 21. Just below that, $2,709 (October 23, 2024, low) is in focus as a second nearby support. In case both abovementioned levels snap, look for a dive back to $2,680 with a full-swing sell-off. 

Conversely, Gold could still hit the all-time high of $2,790, which is around 1% away from current levels. Once above that, a fresh all-time high will present itself. Meanwhile, some analysts and strategists have penciled in calls for $3,000, but $2,800 looks to be a good starting point as the next resistance on the upside. 

XAU/USD: Daily Chart