Gold price eyes record high amid rising trade tensions, Fed rate cut bets
- Gold price attracts buyers for the third straight day and advances to over a two-week high.
- Trade war fears, Fed rate cut bets, and a bearish USD support the precious metal’s upward momentum.
- Traders now look forward to the release of the US PPI report for additional impetus.
Gold price (XAU/USD) trades with a positive bias for the third consecutive day and climbs to over a two-week high, around the $2,942-2,943 region during the Asian session on Thursday. Concerns about rising trade tensions and the potential economic slowdown in the wake of US President Donald Trump's tariffs continue to act as a tailwind for the safe-haven bullion. Apart from this, the growing acceptance that the Federal Reserve (Fed) will cut interest rates several times this year turns out to be another factor benefiting the lower-yielding yellow metal.
The softer-than-expected US consumer inflation figures released on Wednesday come on top of signs of a cooling labor market. Adding to this, fears of an economic downturn on the back of the uncertainty surrounding Trump's policies might force the Federal Reserve (Fed) to resume its rate-cutting cycle in June. This keeps the US Dollar (USD) depressed near its lowest level since October 16 touched on Tuesday and lends additional support to the Gold price. That said, a generally positive risk tone could act as a headwind for the XAU/USD pair.
Daily Digest Market Movers: Gold price is underpinned by a combination of supporting factors
- The uncertainty surrounding US President Donald Trump's aggressive trade tariffs fuels concerns about the potential economic slowdown and continues to push investors toward traditional safe-haven assets.
- Trump's 25% tariff on all steel and aluminum imports took effect on Wednesday. Moreover, Trump threatened that he would respond to any countermeasures announced by the European Union and Canada.
- The European Commission on Wednesday said that the EU will impose tariffs on $28 billion worth of US goods from next month, while Canada announced 25% tariffs on more than $20 billion worth of US goods.
- Adding to this, a cooler US inflation report released on Wednesday lifted market bets for three 25-basis-point rate cuts each by the Federal Reserve at the June, July, and October monetary policy meetings.
- A report published by the US Bureau of Labor Statistics (BLS) showed that the headline Consumer Price Index (CPI) eased more than expected, to the 2.8% YoY rate in February from 3% in the previous month.
- Adding to this, the core gauge, which excludes volatile food and energy prices, rose 3.1% on a yearly basis during the reported month, marking a slowdown from the 3.3% increase registered in January.
- The US Dollar Index, which measures the Greenback against a basket of currencies, languishes near its lowest level since October 16, pushing the Gold price higher for the third straight day on Thursday.
- Traders now look forward to the US economic docket, featuring the release of the Producer Price Index (PPI), for a fresh impetus and to grab short-term opportunities later during the North American session.
Gold price technical setup favors bulls and supports prospects for move towards testing record high, around $2,956
From a technical perspective, the overnight sustained move beyond the $2,928-2,930 horizontal barrier supports prospects for a move towards challenging the all-time peak, around the $2,956 area touched on February 24. Given that oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone, some follow-through buying will be seen as a fresh trigger for bulls. This, in turn, will set the stage for an extension of the recent well-established uptrend witnessed over the past three months or so.
On the flip side, the $2,930-2,828 resistance breakpoint now seems to protect the immediate downside, below which the Gold price could accelerate the slide back towards the $2,912-2,910 intermediate support en route to the $2,900 round figure. This is followed by the weekly low, around the $2,800 region. This is followed by the $2,860 zone, which if broken decisively could pave the way for deeper losses. The XAU/USD pair might then slide towards the late February swing low, around the $2,833-2,832 region, before eventually dropping to the $2,800 mark.
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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