Gold extends its bull run on weak US Dollar, trade tensions
- Gold price posts a fresh all-time high near $3,400 as Trump mulls the removal of Fed Powell for supporting a “wait and see” approach on interest rates.
- Questions over the Fed’s independence have weighed on the US Dollar significantly.
- President Trump expresses confidence in trade talks with a few trading partners
Gold price (XAU/USD) refreshes all-time highs to near $3,400 at the start of the week. The precious metal strengthens as the US Dollar (USD) bleeds, with the Federal Reserve’s (Fed) independence coming under threat as United States (US) President Donald Trump considers removing Fed Chairman Jerome Powell.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, plummets to near 98.00, the lowest level seen in three years. Technically, a weak US Dollar makes Gold a bargain bet for investors.
US President Trump criticizes Powell for not reducing interest rates even though the prices of some goods, and Oil, have fallen significantly. "The Fed really owes it to the American people to get interest rates down. That’s the only thing he’s good for," Trump said and added, "I am not happy with him. If I want him out of there he’ll be out real fast, believe me," Trump said on Friday.
Meanwhile, White House economic adviser Kevin Hassett has also confirmed that the President and his team are looking for ways to oust Fed Powell. "The President and his team will continue to study that matter," Hassett said on Friday.
Financial market participants have taken these comments significantly as negative for the US Dollar’s outlook, as it raises questions over the Fed’s independence from political operations, forcing them to further downgrade its safe-haven status.
Lately, ever-changing headlines from Washington on their tariff agenda have forced investors to reassess the US Dollar’s status as a “reserve currency”. Market experts believe that Donald Trump's imposition of worse-than-expected tariffs is painful for the US economy itself. Theoretically, heightening US economic worries improve the safe-haven demand for the precious metals, such as Gold.
Daily digest market movers: Gold price could decline if global economic uncertainty diminishes
- Gold price is on steroids due to escalated trade tensions and weakness in the US Dollar. However, the safe-haven demand for the precious metal could diminish soon as trade talks by the US with its trading partners are progressing.
- US President Trump has expressed confidence in having a deal with Japan and Mexico after meeting with their representatives last week. "Had a very productive call with the President of Mexico yesterday. Likewise, I met with the highest-level Japanese Trade Representatives. It was a very productive meeting. Every Nation, including China, wants to meet! Today, Italy! US President Donald Trump wrote in a post on the TruthSocial platform on Thursday.
- Over the long weekend due to Good Friday, Trump said, "There will be a trade deal, 100%," and added, "but it will be a fair deal". His comments came after meeting with Italy’s Prime Minister (PM) Giorgia Meloni, the first European Union (EU) leader to meet Trump after the announcement of reciprocal tariffs.
- Meanwhile, President Trump is also confident about having a deal with China. “We're having nice conversations going with China. It's really very good,” Trump said on Friday. Additionally, US Commerce Secretary Howard Lutnick has also expressed optimism over a US-China trade deal and said during the weekend, “We're confident it will work out with China.”
- Market participants expect that the closure of trade deals between the US and its trading partners, especially China, will lead to the reversal of reciprocal tariffs announced by Trump. Such a scenario will diminish global economic uncertainty and weigh on the safe-haven demand of precious metals.
Technical Analysis: Gold rallies to near $3,400
Gold price jumps to near $3,400 on Monday. The precious metal has shown a strong run-up from over a week after an upside breakout of the one-year-old Rising Channel formed on the daily chart. The upward border of the above-mentioned chart pattern is plotted from the April 12, 2024, high of $2,431, while the lower border is placed from the February 15, 2024, low of $1,990.30.
All short-to-long Exponential Moving Averages (EMAs) are sloping higher, suggesting a strong uptrend.
The 14-day Relative Strength Index (RSI) jumps to near 75.00, which indicates a strong bullish momentum, albeit in overbought conditions.
Looking down, the April 11 high of $3,245 will act as a key support zone for the pair. On the upside, the round-level resistance of $3,500 will act as the key resistance zone once Gold breaks above the $3,400 level.
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.
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