Gold slips from highs ahead of Trump’s Liberation Day
- Gold dips 0.28% after rally on Tuesday with market cautious ahead of April 2 'Liberation Day' tariff announcement.
- Recession fears increase as Atlanta Fed cuts Q1 GDP projection to -3.7%, spiking Fed rate cut expectations to 78 bps.
- US data sends mixed signals; ISM indicates worsening conditions, S&P Global suggests expansion.
Gold prices retreated on Tuesday as traders booked profits, awaiting April 2’s Liberation Day in the US, an event in which President Donald Trump is expected to announce additional tariffs aimed at improving the trade deficit imbalance. The XAU/USD trades at $3,114, down 0.28%.
Market sentiment remains mixed as reflected by US equity markets. Investors are anticipating the release of the latest US tariffs on Wednesday with speculation that they will be universal and may reach as high as 20%, according to The Washington Post.
Bullion’s rally was halted on Tuesday despite traders remaining uncertain about the magnitude of the tariffs imposed.
The US economic schedule revealed data that presents a bleak economic outlook as evidenced by money market futures pricing in more than 78 basis points of interest rate cuts by the Federal Reserve (Fed).
Business activity in the US was mixed, according to data announced by S&P Global and the Institute for Supply Management (ISM). The former revealed expansion, while the latter hinted that business conditions are worsening as another round of tariffs looms.
Other data revealed that the labor market remains robust as the US Department of Labor reported a decrease in job openings.
In the meantime, recession fears in the US are growing. Goldman Sachs revealed that the odds of a recession in the United States (US) rose from 20% to 35%, primarily due to business and household pessimism about the outlook, as well as Washington's tolerance of a deeper economic slowdown.
The latest estimate from the Atlanta Fed's GDPNow model indicates that GDP for Q1 2025 is expected to contract by -3.7%, down from the -2.8% estimate on March 28.
Ahead this week, the US economic docket will feature the ISM Services PMI, Nonfarm Payrolls (NFP) figures, and Fed Chair Jerome Powell's speech on Friday.
Daily digest market movers: Gold price treads water amid lower US yields
- The US 10-year T-note yield tumbles four basis points to 4.169%. US real yields edge down two bps to 1.832%, according to US 10-year Treasury Inflation-Protected Securities (TIPS) yields.
- The US ISM Manufacturing PMI fell sharply in March, dropping from 50.3 to 49.3, signaling contraction in the sector. The survey’s comments highlighted tariffs as a key factor contributing to weakness across multiple sub-components.
- The JOLTS report from the US Department of Labor showed that job openings decreased to 7.568 million in February, down from 7.762 million and missing the forecast of 7.63 million. Despite the decline, vacancies remained relatively steady.
- In contrast, S&P Global's Manufacturing PMI indicated modest growth, rising from 49.8 to 50.2, suggesting a slight rebound in factory activity.
- On the commodities front, major Wall Street banks including Goldman Sachs, Société Générale, and Bank of America have raised their Gold price forecasts. They now eye $3,300 as the next upside target, according to a report by Kitco.
XAU/USD technical outlook: Gold price retreats from all-time highs near $3,150
Gold price’s uptrend remains intact, yet price action on Tuesday formed a Doji candlestick, an indication that buyers and sellers lack commitment to open fresh positions ahead of Trump’s announcement. Technical indicators, such as the Relative Strength Index (RSI), suggest that the yellow metal is overbought, paving the way for a retracement.
Despite this, if XAU/USD remains above $3,100, it maintains buyers' control. A breach of this level will expose the March 20 high, which has since turned into support at $3,057, followed by the $3,000 mark. Conversely, if the rally extends, the first resistance level would be the record high at $3,149, followed by the $3,200 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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