Gold price hits fresh all-time high; approaches $3,000 amid trade war fears
- Gold price remains well supported by the uncertainty surrounding Trump’s aggressive trade policies.
- Fed rate cut bets further benefit the yellow metal, though a modest USD uptick caps further gains.
- An improvement in global risk sentiment would further warrant some caution for the XAU/USD bulls.
Gold price (XAU/USD) enters a bullish consolidation and oscillates in a narrow range near the all-time peak touched during the Asian session on Friday. Investors remain worried about US President Donald Trump's aggressive trade policies and their impact on the global economy, which, in turn, continues to underpin demand for the safe-haven bullion. Apart from this, rising bets for further monetary policy easing by the Federal Reserve (Fed) turn out to be another factor that benefits the non-yielding yellow metal.
However, some follow-through US Dollar (USD) buying, for the third straight day, along with a slight improvement in the global risk sentiment, keeps the Gold price below the $3,000 psychological mark. Furthermore, overbought conditions on the weekly chart seem to hold back bullish traders from placing fresh bets around the XAU/USD pair. Nevertheless, the precious metal remains on track to register strong gains for the second straight week and the fundamental backdrop supports prospects for additional gains.
Daily Digest Market Movers: Gold price continues to attract safe-haven flows amid rising trade tensions
- US President Donald Trump ups the ante on the tariff war, saying that he would levy a 200% duty on European wine and cognac imports unless the European Union removes surcharges on US whiskey. Trump had earlier threatened that he would respond to any countermeasures announced by the EU.
- This comes on top of Trump's 25% tariff on all steel and aluminum imports, which took effect on Wednesday, fueling concerns about the risk of a further escalation in the tariff war between the US and its top trading partner, and pushing the safe-haven Gold price to a fresh record high on Friday.
- Traders ramp up their bets that the Federal Reserve will have to lower interest rates this year by more than expected amid the rising possibility of an economic downturn on the back of the Trump administration’s aggressive policies. The expectations were lifted by softer US inflation figures this week.
- In fact, data released on Wednesday showed that the headline US Consumer Price Index (CPI) rose less than expected, by 2.8% on a yearly basis in February, down from 3% in the previous month. Moreover, the core gauge eased to the 3.1% YoY rate from the 3.3% increase registered in January.
- Adding to this, the US Producer Price Index (PPI) was unchanged in February and the yearly rate slowed to 3.2% from 3.7% in January. This pointed to signs of easing inflationary pressure in the US, which, along with a cooling US labor market, supports prospects for further easing by the Fed.
- Traders are currently pricing in the possibility of three 25 basis points Fed rate cuts each at the June, July, and October monetary policy meetings. This, in turn, is seen as another factor that underpins the non-yielding yellow metal, though a combination of factors keeps a lid on further gains.
- The global risk sentiment gets a minor lift in reaction to some positive comments out of the White House and from Canadian officials. Ontario Premier Doug Ford said that the meeting with US Commerce Secretary Howard Lutnick has lowered the temperature on the ongoing trade war.
- Moreover, Russian President Vladimir Putin expressed conditional support for a 30-day ceasefire proposal put forward by the US and Ukraine. This, along with reports that there will be enough Democratic votes to avoid a US government shutdown, further boosts investors' confidence.
- Meanwhile, the US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, prolongs its recovery from the lowest level since October 16 for the third successive day. This further contributes to capping the upside for the commodity during the Asian session.
- Traders now look forward to the Preliminary release of the Michigan US Consumer Sentiment and Inflation Expectations Index for short-term opportunities. The market focus will then shift to the crucial two-day FOMC monetary policy meeting starting next Tuesday.
Gold price needs to consolidate before making a sustained move above $3,000
From a technical perspective, this week's breakout through the $2,928-2,930 horizontal resistance and a subsequent move beyond the previous record high, around the $2,956 region, could be seen as a fresh trigger for bulls. That said, the Relative Strength Index (RSI) on the daily chart remains close to the overbought territory and makes it prudent to wait for some near-term consolidation or a modest pullback before the next leg up. The broader setup, however, suggests that the path of least resistance for the Gold price remains to the upside and supports prospects for an extension of a nearly three-month-old well-established uptrend.
In the meantime, any meaningful corrective slide is more likely to attract fresh buyers near the $2,956 area, below which the Gold price could drop to the $2,930-2,928 horizontal resistance breakpoint, now turned support. The latter should act as a key pivotal point and a convincing break below might prompt some technical selling, which should pave the way for deeper losses. The XAU/USD pair might then accelerate the fall towards the $2,900 round figure en route to the $2,880 region, or the weekly low touched on Tuesday.
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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