Gold price recovers as US-China trade agreement euphoria fades quickly
- Gold price jumps nearly 1% on Tuesday as the US-China trade deal euphoria quickly fades.
- Traders become wary as no further details are provided on the content of the current deal.
- Traders are picking up some safe haven protection at current discounted prices.
Gold (XAU/USD) rebounds and trades near $3,260 at the time of writing on Tuesday, recovering from the 2.65% drop the previous day after the US-China trade deal was announced. Traders are starting to get wary about the lack of detail in the announcement, and another flare-up could propel bullion back toward the record high set last month. Thus, the current move in the precious metal price might be a good time to buy the dip.
“The devil is in the details during negotiations,” said Christopher Wong, a strategist from Oversea-Chinese Banking Corp. “Some degree of caution remains warranted, as we see consolidation in the range of $3,150 to $3,350 an ounce.”, Bloomberg reports. Meanwhile, Federal Reserve (Fed) Bank President of Chicago Austan Goolsbee warned that even current tariff levels will still have an inflationary impulse, the New York Times reports, while Deutsche Bank issued a report saying that the easing of China trade will not fuel a quick Fed interest rate cut.
Daily digest market movers: Alaskan Gold Mine faces tariff risk
- For the Perth-based mining company Northern Star, getting the equipment and materials needed to run a Gold mine in a remote part of Alaska was already costly. US President Donald Trump's trade war isn't helping, and sees its Pogo mine venture flirting with becoming break-even or even at a loss if tariff relief is not coming soon, Bloomberg reports.
- On Monday, President Trump said the US has the upper hand in its trade discussions with the European Union. "The European Union is in many ways nastier than China. We've just started with them. We have all the cards. They treated us very unfairly," Trump said at the White House.
- A big drop in US-China trade barriers lessens the prospects of a serious inflationary supply crunch. Even so, inflation remains stubborn enough that the Fed probably still won't be in a rush to cut interest rates, economists at Deutsche Bank write. Despite the trade war's easing, "policies are likely to keep inflation at uncomfortably high levels for the Fed," Deutsche's team suggests. "This announcement therefore reinforces our view that the Fed is going to be slow to cut rates this year." Deutsche's baseline assumption is that the Fed's next rate cut won't come before December, Deutsche Bank reports in a Monday brief. Gold and US interest rates have an inverse relationship where lower rates often support a higher Gold price and vice versa.
Gold Price Technical Analysis: Not all eggs in one basket
“Close but no cigar”, it seems for President Trump again. Several traders and analysts are wary of the conceived trade deal with China, which is only a 90-day relief. Besides reducing tariffs for 90 days, there are no fundamental elements for markets to cling to, such as forward dates for negotiations, topics, additional numbers, or anything material to see a continuation of momentum. It makes sense for experienced traders to remain cautious and buy securities such as Gold after Monday’s correction.
The daily Pivot Point at $3,248 roughly coincides with that technical pivotal level at $3,245, the April 11 high, identified in previous weeks. From here on out, it would be healthy to see if Gold bulls can push the price back up to $3,289, the R1 resistance for this Tuesday. Further up, $3,341 might be a stretch, though it would mean a test of Friday’s high and the R2 resistance.
On the downside, a double bottom is getting formed near $3,195, which coincides with the S1 intraday support. From there, the next pivotal technical level comes into play at $3,167 (April 3 high), just ahead of the S2 support at $3,155. In case those two levels snap under pressure, the 55-day Simple Moving Average (SMA) comes into play at $3,121.
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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