Gold price slides back closer to $3,300 amid positive risk tone, modest USD uptick
- Gold price attracts some sellers for the second straight day amid receding safe-haven demand.
- A stronger USD further exerts pressure on the commodity amid signs of easing trade tensions.
- Fed rate cut bets might cap the USD and lend some support to the non-yielding yellow metal.
Gold price (XAU/USD) trades with a negative bias for the second consecutive day, though it lacks bearish conviction and holds above the $3,300 mark during the Asian session on Wednesday. The global equity markets continue to rise amid signs of easing US-China trade tensions and US President Donald Trump's decision to give flexibility on tariffs to US carmakers. This, along with a modest US Dollar (USD) uptick, is seen as a key factor undermining demand for the safe-haven precious metal.
Meanwhile, Trump's rapidly shifting stance on trade policies has been received poorly by investors and led to a mass pivot away from US assets recently. Adding to this, prospects for more aggressive policy easing by the Federal Reserve (Fed), amid heightened concerns over the economic impact of tariffs, might continue to act as a headwind for the USD. This, in turn, lends some support to the non-yielding Gold price and helps limit the downside, warranting some caution for bearish traders.
Daily Digest Market Movers: Gold price is pressured by a combination of factors; downside potential seems limited
- President Donald Trump signed an order on Tuesday to ease tariff effects on the auto industry, giving carmakers two years to increase the share of domestic parts in US-assembled vehicles. This adds to the optimism over progress on trade negotiations and signs of the potential de-escalation of US-China trade tensions.
- The US Dollar attracts some buyers for the second straight day and also acts as a headwind for the Gold price. Investors, however, remain on the edge as Trump's erratic trade policies continue to fuel worries about a sharp economic slowdown. Moreover, bets that the Federal Reserve will resume its rate-cutting cycle soon should cap any meaningful USD upside.
- Dovish Fed expectations were reaffirmed by the disappointing US Job Openings and Labor Turnover Survey (JOLTS) and the US Conference Board’s Consumer Confidence Index released on Tuesday. In fact, the US Bureau of Labor Statistics (BLS) reported that US job openings fell to 7.19 million by the last day of March from 7.480 million in the previous month.
- Adding to this, the US Consumer Confidence Index slumped to 86.0 in April, or a nearly five-year low. Furthermore, the Present Situation Index and the Expectations Index dropped to 133.5 and 54.4, respectively, during the reported month. The data strengthens the case for more aggressive policy easing by the Fed and should support the non-yielding yellow metal.
- On the geopolitical front, Russia dismissed Ukraine’s proposal to extend Russian President Vladimir Putin’s unilateral three-day ceasefire to 30 days. Moreover, the US threatened to stop its efforts to end the conflict between Russia and Ukraine if both parties didn't deliver concrete proposals. This further contributes to limiting the downside for the XAU/USD pair.
- Traders now look to Wednesday's US economic docket – featuring the ADP report on private-sector employment, the Advance Q1 GDP print, and the Personal Consumption and Expenditure (PCE) Price Index. This, along with the US Nonfarm Payrolls report on Friday, should provide cues about the Fed's policy outlook and influence the commodity in the near term.
Gold price might continue to show resilience below the 38.2% Fibo. and attract dip-buyers below the $3,300 mark
Technical indicators on the daily chart hold comfortably in the positive territory and favor the XAU/USD bulls. Hence, any further weakness below the $3,300-3,290 immediate support, representing the 38.2% Fibonacci retracement level of the latest leg up from the vicinity of mid-$2,900s or the monthly swing low, might continue to find decent support near the $3,265-3,260 zone. A convincing break below the latter, however, would set the stage for an extension of the recent pullback from the all-time peak touched last week. The downward trajectory might then drag the Gold price to the 50% retracement level, around the $3,225 region, en route to the $3,200 mark.
On the flip side, the Asian session high, around the $3,328 region, could act as an immediate hurdle ahead of the $3,348-3,353 area. This is closely followed by the $3,366-3,368 supply zone, which if cleared should allow the Gold price to reclaim the $3,400 mark. The momentum could extend further toward the $3,425-3,427 intermediate hurdle before bulls make a fresh attempt to conquer the $3,500 psychological 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.