Gold price eases from record high as overbought conditions prompt profit-taking
- Gold price pulls back from the vicinity of the all-time peak, though the downside seems limited.
- Concerns about Trump’s trade tariffs and a global trade war should lend support to the bullion.
- The underlying USD bearish sentiment might contribute to limiting losses for the XAU/USD pair.
Gold price (XAU/USD) attracts some sellers in the vicinity of the $2,950 level during the Asian session on Friday and moves away from the all-time peak touched the previous day. The intraday downtick lacks any obvious fundamental catalyst and could be attributed to some profit-taking amid slightly overbought conditions on the daily chart. Any meaningful corrective decline, however, still seems elusive in the wake of worries that US President Donald Trump's tariff plans could trigger a global trade war. This might continue to act as a tailwind for the safe-haven bullion.
Furthermore, expectations that Trump's protectionist policies would reignite inflation might continue to underpin the Gold price, which is seen as a hedge against rising prices. Apart from this, geopolitical risks, doubt over US consumer health, and a weaker sentiment surrounding the US Dollar (USD) should contribute to limiting the downside for the precious metal. This, in turn, supports prospects for the emergence of dip-buying at lower levels. Nevertheless, the XAU/USD pair seems poised to register gains for the eighth consecutive week and prolong a two-month-old uptrend.
Gold price bulls opt to lighten their positions; trade war fears should continue to lend support
- The uncertainties surrounding US President Donald Trump's threatened tariffs and their impact on the global economy lifted the safe-haven Gold price to a fresh record high, near the $2,955 region on Thursday.
- Trump has imposed a 25% tariff on steel and aluminum, and an additional 10% tariff on Chinese imports since taking office on January 20, and also plans to announce fresh tariffs over the next month or sooner.
- Meanwhile, a softer-than-anticipated sales forecast from Walmart raised doubt over underlying economic strength amid worries that Trump's policy moves would boost inflation and undermine consumer spending.
- Hopes for a peace deal between Russia and Ukraine seem to have faded in the wake of intensifying Ukrainian drone attacks on Russian Oil pumping stations, which could further act as a tailwind for the precious metal.
- The US Dollar languishes near its lowest level since December 10 amid bets for more interest rate cuts by the Federal Reserve and might turn out to be another factor that could lend support to the XAU/USD pair.
- Fed officials, however, remain wary of future interest rate cuts amid still-sticky inflation, which, in turn, prompts some profit-taking around the non-yielding yellow metal amid slightly overbought conditions.
- St. Louis Fed President Alberto Musalem warned on Thursday that rising inflation expectations combined with the risk of stubborn stagflation could create a double challenge for the US economy.
- Earlier on Thursday, Fed Board Governor Adriana Kugler said that US inflation still has some way to go to reach the central bank's 2% target and that its path toward that goal continues to be bumpy.
- In contrast, Atlanta Fed president Raphael Bostic struck a more dovish tone and sees room for two more rate cuts this year, though noted that much depends on the evolving economic conditions.
- Traders now look forward to the flash PMI prints for a fresh insight into the global economic health, which, in turn, should provide some impetus to the commodity heading into the weekend.
- Apart from this, the US economic docket – featuring the release of Existing Home Sales data and the revised Michigan Consumer Sentiment Index – might contribute to producing short-term opportunities.
Gold price technical setup supports prospects for the emergence of dip-buying near $2,900
From a technical perspective, the daily Relative Strength Index (RSI) remains close to the 70 mark and warrants caution for bullish traders. That said, the recent breakout through the $2,928-2,930 horizontal barrier, representing the top boundary of a short-term trading range, suggests that the path of least resistance for the Gold price remains to the upside. Hence, any further slide could be seen as a buying opportunity near the $2,900 mark. This is followed by the $2,880 support, which if broken could drag the XAU/USD to the $2,860-2,855 area en route to the $2,834 zone and eventually to the $2,800 mark.
Meanwhile, bullish traders might now wait for some near-term consolidation and some follow-through buying beyond the $2,950-2,955 region before placing fresh bets. Nevertheless, the constructive setup supports prospects for an extension of the recent well-established uptrend witnessed over the past two months or so.
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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