Gold pulls back from $3,500 record as China trade hopes spur profit-taking
- Gold slides $100 from record high after US Treasury Secretary Bessent signals de-escalation with China.
- Despite a pullback, Gold remains up 29% YTD on Fed uncertainty, trade risks, and geopolitical tensions.
- World Gold Council reports $21B Q1 ETF inflows, the second-highest quarterly figure in history, signaling robust demand.
Gold price retreats after hitting a record high at $3,500, but traders booking profits and improving risk appetite send the Bullion drifting lower, although US Treasury yields drop. At the time of writing, XAU/USD hovers near $3,400, down over 0.63%.
Breaking news from United States (US) Treasury Secretary Scott Bessent, who said that he sees a de-escalation with China, improved the market mood, which is a headwind for Bullion prices. Since the headlines, the yellow metal drifted lower by $50 from around $3,420 to $3,370.
Despite this, uncertainty about US trade policies and President Donald Trump’s attacks on the Federal Reserve (Fed) can boost demand for Gold and push prices higher. So far in the year, Gold prices have remained up almost 29% due to geopolitics and Trump’s swinging mood.
Last week, Chair Jerome Powell said the Fed would remain data-dependent and even flagged the chance of a stagflationary scenario, acknowledging, “We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension.”
Amid this backdrop and an uncertain economic outlook, investors flock to safety, as the flows of Gold ETFs are picking up, according to the World Gold Council (WGC).
“Global physically backed gold ETFs1 reported strong inflows in March totaling US$8.6bn. This helped drive total Q1 flows of US$21bn (226t) to the second highest quarterly level in dollar terms, only behind Q2 2020's US$24bn (433t),” revealed the WGC.
Daily digest market movers: Gold price retreats towards $3,400 on risk-on mood
- The US 10-year Treasury yield falls two basis points to 4.395%.
- US real yields followed suit, edges down two bps to 2.175%, as shown by the US 10-year Treasury Inflation-Protected Securities yields
- In rates markets, money market traders have priced in 91 basis points of Fed rate cuts by the end of 2025, with the first cut expected in July.
- Data-wise, this week's US economic docket will be packed with Fed speakers, S&P Global Flash PMIs, Durable Goods Orders, and the University of Michigan Consumer Sentiment final reading.
XAU/USD technical outlook: Gold price retraces after hitting $3,500
Gold’s uptrend remains intact, yet the fall below $3,400 was short-lived as the precious metal recovers some ground. If buyers want to re-test $3,500, they must surpass $3,450 once more before testing the all-time high. Nevertheless, the Relative Strength Index (RSI) has turned overbought, and failure to reach 80 could pave the way for Bullion’s pullback.
On the downside, XAU/USD’s daily close below $3,400 could push Gold’s price towards $3,350, followed by $3,300.
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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