In the dynamic world of commodities, gold has once again caught the spotlight. During the first half of the European trading session, the gold price (XAU/USD) maintained its strong intraday gains, trading just above the $3,050 mark, which sits at the upper end of the weekly trading range. This upward movement comes as a result of a confluence of factors, primarily centered around escalating global trade tensions and growing fears of a recession.
Trade War Fears Ignite Safe-Haven Demand
The specter of an all-out global trade war looms large, stoked by US President Donald Trump’s decision to impose sweeping reciprocal tariffs. The White House press secretary, Karoline Leavitt, confirmed that the US would implement a hefty 104% tariff on Chinese imports starting Wednesday. This has sent shockwaves through the financial markets, fueling concerns that such protectionist measures could push the world economy into a recession.
In times of such economic uncertainty, investors instinctively seek the safety of assets like gold. The precious metal has long been regarded as a haven during market turmoil, and these trade – related fears have triggered a fresh wave of risk – aversion. As a result, the demand for gold has surged, providing a significant boost to its price.
Fed Rate Cut Bets Bolster Gold
Adding to gold’s upward momentum are the increasing bets on multiple interest rate cuts by the Federal Reserve (Fed) this year. The tariffs imposed by the US are raising concerns about a potential economic slowdown in the country. In response, investors are pricing in a high probability of rate cuts.
According to the CME Group’s FedWatch Tool, traders are assigning over a 60% chance that the Fed will lower borrowing costs in May. Moreover, expectations are that the US central bank will implement five rate cuts in 2025. Lower interest rates reduce the opportunity cost of holding non – yielding assets like gold. This, combined with a weaker US dollar (USD) due to these rate cut expectations, has made gold an even more attractive investment option.
Divergent Fed Voices and Market Expectations
Fed officials have offered mixed signals. San Francisco Fed President Mary Daly stated on Tuesday that the current policy is in a “very good place” and is “modestly restrictive.” However, she also expressed concerns about the inflationary pressure stemming from widespread tariffs.
Chicago Fed President Austan Goolsbee added to the market’s unease, highlighting that US tariffs are larger than anticipated and pose a real risk to US importers. He also noted the changing relationship between sentiment and spending and the uncertainty surrounding how the Fed would respond to a negative supply shock.
Technical Outlook and Key Levels
From a technical analysis perspective, the recent sharp decline from gold’s record high found support near the 61.8% Fibonacci retracement level of the February – April upward move. This support is located around the $2,957 – 2,956 area, which aligns with a multi – week low touched on Monday. The 50 – day simple moving average (SMA), currently around the $2,952 region, also provides a crucial level of support. A decisive break below this level could signal a shift in sentiment and trigger a downward move for gold, potentially dragging the price towards the $2,920 horizontal zone and then towards the $2,900 round figure.
On the upside, if gold can break beyond the overnight swing high of around $3,023, it could target the $3,055 – 3,056 barrier. Sustained buying pressure could then pave the way for a move towards reclaiming the $3,100 mark, although it may face some resistance near the $3,075 – 3,080 region.
FOMC Minutes and Upcoming Economic Data in Focus
Investors are now eagerly awaiting the release of the minutes from the Fed’s last policy meeting. These minutes, typically released three weeks after the policy decision, offer valuable insights into the Fed’s thinking and future policy direction. A bullish tone in the minutes could potentially strengthen the US dollar, while a dovish stance may further weaken it, thus influencing the gold price.
In addition to the FOMC minutes, the US Consumer Price Index (CPI) and the Producer Price Index (PPI), scheduled for release on Thursday and Friday respectively, will be closely scrutinized. These economic indicators can provide clues about the Fed’s future policy path, which in turn will have a significant impact on the USD and, by extension, the XAU/USD pair.
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