- Gold price continues to attract safe-haven flows amid rising trade tensions.
- Fed rate cut bets offset a modest USD strength and support the XAU/USD pair.
- Traders now look to the US PCE Price Index for some meaningful impetus.
Gold price (XAU/USD) builds on its upward momentum for the second straight day and climbs to a fresh all-time peak, around the $3,080 region heading into the European session on Friday. Against the backdrop of US President Donald Trump’s auto tariffs announced on Wednesday, the uncertainty over impending reciprocal tariffs next week and their effect on the global economy continue to weigh on investors’ sentiment. This is evident from a generally weaker tone around the equity markets and is seen as a key factor driving safe-haven flows toward the previous metal.
Apart from this, expectations that Trump’s aggressive trade policies will dent US growth and force the Federal Reserve (Fed) to resume its rate-cutting cycle soon offer additional support to the non-yielding Gold price. The supporting factors, to a larger extent, offset a modest US Dollar (USD) uptick, which tends to undermine demand for the USD-denominated commodity. Bulls, however, could pause for a breather ahead of the US Personal Consumption Expenditure (PCE) Price Index, which could provide cues about the Fed’s rate-cut path and influence the non-yielding yellow metal.
Daily Digest Market Movers: Gold price bulls retain control amid tariffs-driven flight to safety
- 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 overbought daily RSI warrants caution before positioning for any further gains
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.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.