Gold prices fell sharply from their highs in early trading on Friday, after reaching $3,410 before profit-taking by investors.
The decline is seen more as a tactical move to lock in profits than a change in overall sentiment, as the market is now preparing for the release of US inflation data next week.
Despite the slight decline, gold still has the opportunity to record a second consecutive weekly gain, supported by the weakening US dollar, increased expectations of interest rate cuts, and escalating geopolitical risks.
The US Dollar Index is also on track for weekly losses, weighed down by concerns over trade policy and the future direction of the Federal Reserve (Fed).
Key Drivers & Market Signals
Gold Bar Import Tax Triggers Market Reaction
The US Customs and Border Protection Department confirmed the imposition of tariffs on one kilogram gold bars imported into the US. The move is expected to disrupt supply chains from Switzerland (the world's largest gold refining hub) and London. The announcement sent gold futures soaring to record highs before profit-taking.
Global Trade Tensions Escalate
President Donald Trump began implementing retaliatory tariffs on dozens of countries on Thursday, including big increases for Switzerland, Brazil and India.
Threats to impose additional tariffs on China and Japan over Russian oil imports have added to market uncertainty.
Fed Independence Questioned
Trump has named Stephen Miran (Chairman of the Council of Economic Advisers) to replace outgoing Fed Governor Adriana Kugler, potentially succeeding Jerome Powell in 2026.
The political changes at the Fed have raised questions about its independence, as well as bolstering market expectations that interest rates will be cut by up to 100 basis points by early 2026.
USD Weakness Continues to Support Gold
Fear of an economic slowdown and trade risks continue to weigh on the US dollar, keeping buying interest as gold prices fall.
The next catalyst will be next week’s US CPI inflation data, which could confirm or dampen expectations of a Fed rate cut.
Key Points to Watch
US CPI Inflation Data (Next Week)
A lower-than-expected reading would strengthen the odds of a rate cut and provide a boost to gold prices.
A higher reading could trigger a resurgence of the US dollar and weigh on gold prices in the short term.
Fed Nominations Announcement
Markets will be watching statements from Stephen Miran and other nominees for clues on the direction of monetary policy.
Trade Policy Developments
Any escalation of tariffs, particularly involving Asia, could potentially increase caution and bolster demand for safe-haven assets like gold.
Profit-Taking Risks Heading into the Weekend
With gold posting two straight weeks of gains, a short-term position adjustment is likely.
Conclusion
While today's decline is more of a short-term profit-taking activity, the fundamental support for gold remains strong on expectations of a Fed rate cut, global trade uncertainty, and structural weakness in the US dollar.
A weekly chart close above $3,396 would confirm bullish momentum to $3,440-$3,452, potentially even testing $3,500. Conversely, a decline below $3,350 could see prices retest $3,300, but the overall uptrend remains intact.
