On Thursday (February 6th) morning trading in the Asian market, spot gold fluctuated narrowly and is currently trading around $2867.75 per ounce. Gold prices continued to hit a historic high on Wednesday, reaching a high of $2882.25 per ounce and closing at $2867.31 per ounce. This was due to investors seeking safe haven assets amid escalating concerns about international trade conflicts and their potential impact on economic growth. On the other hand, the January ISM Services PMI in the United States performed worse than expected, with 10-year US Treasury yields falling more than 2% to a nearly one and a half month low, providing upward momentum for gold prices.

Peter Grant, Vice President and Senior Metals Strategist at Zaner Metals, said, "Gold prices continue to be significantly affected by trade uncertainty... The market is under tension due to China's tariff issues and retaliatory actions, so safe haven fund flows remain the dominant factor

Earlier this week, Trump's proposal to impose tariffs on China came into effect on Tuesday. China retaliated against the new tariffs imposed by the United States by imposing tariffs on American goods. Trump also threatened to impose tariffs on the European Union, escalating market concerns about trade frictions and attracting a large amount of safe haven funds into the gold market.

But the United States Postal Service (USPS) announced on Wednesday that it will once again accept packages from China. Previously, due to the cancellation of a trade clause by US President Trump, USPS temporarily suspended the receipt of packages. This clause has been used by retailers including Temu, Shein, and Amazon to ship low value packages tax-free to the United States.

On Wednesday, the market's concerns about the trade war cooled down, but due to the significant weakening of safe haven demand for the US dollar and poor economic data performance, the US dollar index continued its downward trend on Wednesday, hitting a new low; The yield of the US 10-year treasury bond bond fell 2.3% to 4.42%, the largest one-day decline in nearly three weeks, and hit 4.40% as the lowest intraday, the lowest since December 18. This continues to provide upward momentum for gold prices.

The US ISM and trade data offset the impact of a fairly strong US private employment report.

The ADP National Employment Report shows that the United States added 183000 private sector jobs last month, while economists expect an increase of 150000.

However, the US trade deficit widened by 24.7% to $98.4 billion in December, the highest since March 2022 and the second largest deficit on record, with the largest monthly increase since March 2015; Imports surged to a record high of $364.9 billion in December, and companies may be eager to purchase foreign made goods such as finished metals and computers in the face of tariff threats.

A survey released by the Institute for Supply Management (ISM) on Wednesday showed that service industry companies in January were concerned that tariffs would lead to price increases and input shortages.

Some professional, scientific, and technical service providers have reported that "tariff threats are leading to price increases," and added that "threats from international market instability are causing shortages of various materials.

Specific data shows that the ISM Non Manufacturing Purchasing Managers' Index (PMI) for January fell from 54.0 in December last year to 52.8.

Many surveyed companies emphasized that adverse weather conditions have affected their business levels and production, "said Steve Miller, Chairman of the ISM Service Industry Survey Committee

Federal Reserve officials have pointed out that the significant policy uncertainty brought about by the tariff policies and other issues implemented during the early stages of the Trump administration is one of the main challenges determining the direction of US monetary policy in the coming months.

Chicago Fed President Goolsby warned that ignoring the potential inflationary impact of tariffs would be a mistake, while Richmond Federal Reserve Bank President Barkin stated that it is still uncertain at this stage whether the cost increase caused by tariffs will be absorbed by businesses or passed on to consumers. The views of these two Federal Reserve officials reflect the cautious attitude taken by the Fed in deciding whether to resume interest rate cuts later this year or continue to maintain interest rates unchanged.

Richmond Fed President Barkin also stated that despite the uncertainty surrounding the impact of the Trump administration's new policies on tariffs, immigration, and regulation, the Fed still tends to further cut interest rates this year. He also expects the annual inflation rate in the United States to "significantly" decrease in the first quarter.

It is worth mentioning that President Trump of the United States proposed to resettle Palestinians in other places, and then the United States government would take over the war ravaged Gaza to build the "Riviera of the Middle East". This proposal was confusing and attracted global criticism, which triggered a safe haven buying of treasury bond and gold.

Trump's proposal to take over Gaza has sparked safe haven trading, "said Will Compernolle, macro strategist at FHN Financial. This statement poses a risk of escalating conflicts in a wider region“

The refinancing announcement of the US Treasury Department further strengthened the bullish environment of treasury bond bonds on Wednesday. The announcement showed that the auction scale of treasury bond had not increased in the quarter ended April, which was in line with expectations. But the impact of the announcement is reflected in the content it did not mention.

Investors are looking forward to Friday's US employment report providing further clues about the outlook for interest rates. Non yielding gold is considered an inflation hedge tool, but rising interest rates may weaken its appeal.

The trade war is a recent factor driving returns, "said Kathy Jones, Chief Fixed Income Strategist at Schwab. We are facing a huge threat of tariffs, but it has not really become a reality, at least for now... But we do need to evaluate the prospects day by day, even minute by minute

This trading day will see the number of layoffs by challenger companies in January, changes in initial jobless claims in the United States, and the Bank of England's interest rate decision. Federal Reserve officials such as Governor Waller will give speeches, and investors need to pay attention. Additionally, we will continue to monitor the latest developments regarding US President Trump.

Daily chart of spot gold