Gold recovers while investors remain confident over swift progress in EU-US trade talks
- Gold price recovers to near $3,320 despite increasing hopes for a US-EU trade deal.
- Russia’s Putin demands that NATO restrict its eastern expansion in writing.
- Investors await FOMC minutes and the US PCE inflation data for April.
Gold price (XAU/USD) attracts bids and rises to near $3,320 during European trading hours on Wednesday, following an over 1% sell-off the previous day. The yellow metal rises despite investors becoming increasingly confident that the United States (US) and the European Union (EU) will secure a trade deal soon.
On Tuesday, US President Donald Trump expressed confidence in a post on Truth.Social that the EU is making swift efforts to come to the table for trade negotiations with Washington.
"I was extremely satisfied with the 50% Tariff allotment on the European Union, especially since they were “slow walking". I have just been informed that the EU has called to quickly establish meeting dates. This is a positive event, and I hope that they will," Trump wrote.
This comes as an improvement in the global economic outlook as both economies trade a significant portion of the global business. Theoretically, signs of easing global economic uncertainty diminish demand for safe-haven assets, such as Gold.
The optimism over the trade deal between the EU and the US has also supported the US Dollar (USD). During European trading hours, the US Dollar Index (DXY) surrenders its early gains and falls back to near 99.50 from the intraday high of 99.85. Though it has recovered significantly from the monthly low of 98.70 posted on Monday. Technically, a higher US Dollar makes the Gold price an expensive bet for investors.
Daily digest market movers: Gold price awaits FOMC minutes
- The next major trigger for the Gold price will be the release of the Federal Open Market Committee (FOMC) minutes from the May policy meeting, due at 18:00 GMT. The FOMC minutes are expected to provide a detailed explanation behind the Federal Reserve’s (Fed) decision to hold interest rates steady in the range of 4.25%-4.50%.
- After the interest rate announcement, the Fed guided to hold interest rates steady for a long enough period until officials gain clarity on the economic performance due to the imposition of new economic policies under the US President Donald Trump’s leadership. The Fed also warned that the risks of higher unemployment and inflation have risen.
- This week, investors will also focus on the US Personal Consumption Expenditures Price Index (PCE) data for April, which will be released on Friday. However, the impact of the inflation data is expected to be limited as Fed officials have warned that tariffs imposed by the White House could de-anchor consumer inflation expectations.
- On Tuesday, Minneapolis Fed Bank President Neel Kashkari supported holding interest rates for longer amid elevated uncertainty over Trump’s tariff policy. “Until there is more clarity on the path for tariffs and their impact on prices and economic activity, it is better to keep a patient stance on the monetary policy, which is likely only modestly restrictive now,” Kashkari said.
- On the geopolitical front, hopes of a ceasefire between Russia and Ukraine have diminished, potentially supporting the Gold price. Russian leader Vladimir Putin has demanded assurance from Western leaders to restrict the NATO enlargement on the east side in writing and the removal of sanctions on his nation to end the war in Ukraine.
Technical Analysis: Gold price holds 20-day EMA
Gold price struggles around an upward-sloping trendline on a daily timeframe around $3,335, which is plotted from the December 12 high of $2,726. However, the near-term trend of the precious metal is bullish as it holds above the 20-day Exponential Moving Average (EMA), which trades around $3,288.
The 14-day Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, suggesting indecisiveness among market participants.
Looking up, the May 7 high around $3,440 will act as key resistance for the metal. On the downside, the May 15 low at $3,120 will be the key support zone.
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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