- Gold price buying remains unabated as trade uncertainties continue to boost safe-haven demand.
- Geopolitical risks and Trump’s threat to the Fed’s independence further benefit the XAU/USD pair.
- Bulls, however, pause for a breather amid extremely overbought conditions on the short-term charts.
Gold price (XAU/USD) retreats slightly from the $3,500 neighborhood, or a fresh all-time high touched during the Asian session on Tuesday as bulls pause for a breather amid overbought conditions on short-term charts. Any meaningful corrective downfall, however, still seems elusive as worries that US President Donald Trump’s steep tariffs and the erratic trade war would push the global economy into a recession. This, along with geopolitical tensions, might continue to act as a tailwind for the safe-haven bullion.
Meanwhile, Trump’s back-and-forth tariff announcements have weakened investors’ confidence in the US economic growth. Adding to this Trump’s fresh attack on Federal Reserve (Fed) Chair Jerome Powell raised doubts about the central bank’s independence. This, along with the prospects for more aggressive policy easing by the Fed, fails to assist the US Dollar (USD) to register any meaningful recovery from a three-year low touched on Monday and should further offer some support to the non-yielding Gold price.
Daily Digest Market Movers: Gold price bulls turn cautious after US-tariffs inspired record run
- The uncertainty over US President Donald Trump’s steep tariffs and their impact on the global economy continues to push the safe-haven Gold price to fresh record highs on Tuesday.
- Moreover, Trump’s rapidly shifting stance on trade policies, along with a call to fire Federal Reserve Chair Jerome Powell, keeps investors on the edge and further benefits the commodity.
- Trump accused Powell of not moving fast enough to bring down interest rates. Furthermore, Trump and his team are studying whether they can oust Powell before the end of his term.
- This raises doubts over the Fed’s monetary policy independence, which, along with bets that the US central bank will resume its rate-cutting cycle, continues to weigh on the US Dollar.
- According to the CME Group’s FedWatch Tool, traders are pricing in the possibility of the Fed cutting interest rates by 25 basis points in June and deliver at least three rate reductions in 2025.
- On the geopolitical front, Russian forces had launched 96 drones and three missiles into eastern and southern Ukraine after the 30-hour short-lived and partially observed Easter ceasefire.
- Traders now look forward to the release of the Richmond Manufacturing Index from the US, which, along with speeches from influential FOMC members, will drive the USD demand.
- The focus, however, will remain on the flash PMIs on Wednesday, which would offer fresh insight into the global economic health and provide some meaningful impetus to the XAU/USD pair.
Gold price setup supports prospects for the emergence of dip-buying; the $3,400 mark holds the key
From a technical perspective, the daily Relative Strength Index (RSI) remains well above the 70 mark and warrants caution for bulls. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before placing fresh bullish bets around the Gold price and positioning for an extension of the recent well-established uptrend witnessed over the past four months or so.
In the meantime, any meaningful corrective slide is likely to find decent support near the $3,425-3,423 horizontal zone ahead of the $3,400 mark. A convincing break below the latter might prompt some technical selling and drag the Gold price further toward the $3,358-3,357 region. This is followed by the $3,344 support, which if broken decisively should pave the way for deeper losses.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.