Gold price declines toward $3,200 as markets assess trade war headlines
- Gold corrects lower after posting impressive gains in the previous week.
- US announced exemption for electronic devices from reciprocal tariffs.
- Market mood remains upbeat on Monday following last week's volatile action.
Gold price started the week with a small bearish gap but managed to regain its traction during the Asian trading hours. After touching a new record-high of $3,245, XAU/USD entered a consolidation phase and declined toward $3,200. At the time of press, the pair was trading at $3,208, losing about 1% on the day.
Gold price retreats as risk mood improves
Gold gained nearly 2% on Friday as safe-haven flows dominated the action in financial markets after China announced that they raised additional tariffs on US imports to 125% from 84% in retaliation.
Late Friday, US President Donald Trump's administration said they decided to grant some electronic device imports, including smartphones, computers and laptops, exemptions from the steep 125% additional tariffs imposed on China. Trump clarified that these products will still be subject to the 20% existing tariffs, which were imposed initially because of the fentanyl crisis in the US.
Over the weekend, US Commerce Secretary Howard Lutnick said that technology imports, alongside semiconductors, will face separate new levies within the next two months.
These developments helped the market mood improve on Monday, causing Gold to stage a downward correction. Reflecting the risk-positive atmosphere, US stock index futures gain between 1.1% and 2% heading into Wall Street's opening bell.
The economic calendar will not feature any high-tier data releases in the American session. Investors will pay close attention to comments from Federal Reserve officials. Additionally, Trump is expected to share additional details regarding the trade policy on semiconductors.
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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