Gold looks set for weekly loss as news of trade talks curb haven demand
- Gold price tries to hold a pivotal level at $3,245 after consolidating three consecutive days of losses.
- Gold unwinding takes place after headlines that China is considering trade talks with the US.
- Although sentiment looks to be starting to tilt to the downside, upside risks persist.
Gold (XAU/USD) trades around $3,250 on Friday, recovering slightly from two-week lows after three straight days of losses. The losing streak that took place this week was the sum of a whole package of headlines that all had one theme in common: easing on tariffs.
Besides the executive orders United States (US) President Donald Trump had signed this week to give relief to the car sector, the main driver for the turnaround in the Gold rally is news that China is considering to start talking with the Trump administration on a potential trade deal, Bloomberg reports on Friday.
Although the initial market reaction is bearish for Gold with these possible tariff talks getting underway, a quite big tail risk needs to be outlined. The best example is the current ongoing trade talks between Japan and the US, where Japan is the biggest foreign US debt holder by $1,125.9 billion. Japanese Finance Minister Katsunobu Kato said this Friday that the Japanese holdings are a tool for negotiating with the Trump administration, explicitly raising for the first time its leverage as a massive creditor to the United States, Reuters reported.
Daily digest market movers: Trading halted
- China’s Commerce Ministry said in a Friday statement that it had noted senior US officials repeatedly expressing their willingness to talk to Beijing about tariffs, and urged officials in Washington to show “sincerity” toward China. “The US has recently sent messages to China through relevant parties, hoping to start talks with China,” the ministry added. “China is currently evaluating this”, Bloomberg reports.
- National Economic Council Director Kevin Hassett said the Trump administration is making progress in tariff talks and expects news by the end of Friday, Reuters reports.
- When looking at US debt holders, with Japan coming in first with $1,125.9 billion in holdings, China comes in second with a total of $784.3 billion, while the total US debt amounts to around $26,025.4 billion.
- The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve in May's meeting stands at 6.4% against a 93.6% probability of no change. The June meeting sees a 57.8% chance of a rate cut. Should the Nonfarm Payrolls release later this Friday fall substantially, rate cut bets for June and even May might see a lift in sentiment, where a substantial upside beat of estimates would mean a further delay in any rate cuts from the Federal Reserve (Fed). Nonfarm Payrolls are expected to be released at 12:30 GMT, with the consensus at 130,000 against the previous 228,000.
- Another chapter in the take-over story with Gold Road Resources Ltd. Shares were suspended from trading in Sydney, with the miner citing “media speculation regarding a potential change of control transaction”. The suspension will be lifted when the market opens on May 6, unless the company issues an announcement before then, the Perth-based miner said in an exchange filing Friday, Bloomberg reports.
Gold Price Technical Analysis: Due for a breather
Although the Gold rally may be stalling and a return to the all-time highs at $3,500 will not happen soon, the tail risk of a shock event is still present.
That comes with possible trade talks starting between China and the US, opening up risk for a full escalation if talks are not going the way they are supposed to. The pressure is not only on for China, where the tariffs are eroding economic growth, but for President Donald Trump as well as he has nothing to show in terms of trade deals after 100-days of turmoil.
The Gold price is currently at a very heavy technical area, with first the daily pivot falling in line with the technical pivotal level from the high of April 11 at $3,245. Very close, the first R1 resistance at $3,254 is already presenting itself. For a solid breakout, $3,332 as R2 resistance is the upside level to look out for and which would deliver confirmation that the three-day losing streak is done.
On the downside, the S1 support is providing a cushion at $3,197 and coincides with Thursday’s low. Further down, the technical pivotal floor near $3,167 (April 3 high) comes into play, advancing the S2 at $3,155.
XAU/USD: Daily Chart
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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