Gold price advances to fresh all-time peak amid tariffs-driven global flight to safety
- Gold price continues to attract safe-haven flows amid rising trade tensions.
- Fed rate cut bets keep the USD bulls on the defensive and also lend support.
- Traders now look to the US PCE Price Index for some meaningful impetus.
Gold price (XAU/USD) attracts follow-through buyers for the second consecutive day and climbs to a fresh record high, around the $3,077-3,078 area during the Asian session on Friday. The global risk sentiment takes a hit in reaction to US President Donald Trump's auto tariffs announced on Wednesday. Moreover, the uncertainty over Trump's impending reciprocal tariffs next week and their effect on the global economy weighs on investors' sentiment. This, in turn, is seen as a key factor that continues to drive safe-haven flows toward the precious metal.
Meanwhile, the latest escalation in the trade war fuels worries that Trump's impending reciprocal tariffs will dent US growth and force the Federal Reserve (Fed) to resume its rate-cutting cycle soon. This keeps the US Dollar (USD) bulls on the defensive and turns out to be another factor underpinning the non-yielding Gold price. The XAU/USD bulls, however, could pause for a breather amid slightly overbought conditions and ahead of the US Personal Consumption Expenditure (PCE) Price Index, which should offer cues about the Fed's rate cut path.
Daily Digest Market Movers: Gold price remains well supported by worries about Trump’s tariffs
- US President Donald Trump on Wednesday announced a 25% tariff on imported cars and light trucks set to take effect on April 3, widening the global trade war and tempering investors' appetite for riskier assets.
- This comes on top of a flat 25% tariff on steel and aluminum, and Trump's impending reciprocal tariff announcement next week, which fuels uncertainty and lifts the safe-haven Gold price to a fresh record high.
- Meanwhile, the markets are now pricing in the possibility that the Federal Reserve (Fed) would lower borrowing costs again at its June policy meeting amid worries about the tariffs-driven US economic slowdown.
- The US Dollar bulls seem rather unaffected by better-than-expected US macro data released on Thursday and mostly hawkish comments from Fed officials, lending additional support to the XAU/USD pair.
- The US Bureau of Economic Analysis (BEA) reported that the US ' Gross Domestic Product (GDP) grew by 2.4% annualized pace in the fourth quarter, above the previous estimate and expected reading of 2.3%
- Adding to this, the US Department of Labor said that the number of US citizens filing new applications for unemployment insurance ticked lower to 224K compared to the previous week's revised tally of 225K.
- Richmond Fed President Tom Barkin said that the current moderately restrictive monetary policy is right for an environment with an abnormal amount of uncertainty and fast changes in US government policy.
- Adding to this, Boston Fed President Susan Collins warned that the Trump administration's aggressive trade policies will drive up US inflation, but it is unclear how persistent that upward pressure will be.
- Hence, the focus remains glued to the release of the US Personal Consumption Expenditure (PCE) Price Index, or the Fed's preferred inflation gauge, due later during the early North American session.
- Investors will scrutinize the crucial data to gauge the trajectory for further rate cuts, which will influence the USD price dynamics and provide a fresh impetus to the non-yielding yellow metal.
Gold price needs to consolidate before the next leg up amid slightly overbought daily RSI
From a technical perspective, this week's bullish resilience near the $3,000 psychological mark and the subsequent move up suggest that the path of least resistance for the Gold price remains to the upside. That said, the Relative Strength Index (RSI) on the daily chart is already flashing overbought conditions and warrants some caution. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for an extension of a well-established uptrend witnessed over the past three months or so.
Meanwhile, any corrective slide now seems to attract some dip-buyers near the $3,050-3,048 horizontal zone. This should help limit the downside for the Gold price near the $3,036-3,035 region. A sustained break below the latter, however, might prompt some technical selling and drag the XAU/USD below the $3,020-3,019 intermediate support, back toward the $3,000 mark. The said handle should act as a key pivotal point for short-term traders, which if broken decisively should pave the way for some meaningful fall in the near term.
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.