Gold Reverses Gains After Hitting $3,000 on Trump Trade Woes
- Gold Rockets to Record High, Briefly Touching $3,004 Before Cooling Down to $2,982 Amidst Dollar Rollercoaster.
- Geopolitical Heat Rises: Russia-Ukraine Truce Fails, China’s Gold Buying Spree Adds Fuel to the Fire.
- US Recession Clouds Gather After Gloomy Consumer Mood, Boosting Bets on Fed Rate Cuts in 2025.
Gold took a breather after a wild ride, hitting record highs and busting through the $3,000 barrier. Traders are still scratching their heads over President Trump’s trade moves, and this, combined with a shaky US Dollar, helped propel the precious metal to a stunning peak of $3,004 per troy ounce, before it dipped back down to $2,982, marking a slight 0.21% drop for the day.
Geopolitics are also throwing fuel on the gold fire. The ceasefire between Ukraine and Russia is looking shaky, with Russia appearing hesitant to stick to the 30-day agreement.
Meanwhile, China’s central bank, the People’s Bank of China (PBoC), is loading up on gold, adding to its bullion reserves for the fourth month in a row in February, according to the World Gold Council (WGC).
Worries about a potential US recession sent the US Dollar, or ‘Greenback,’ tumbling, which in turn boosted demand for gold, which doesn’t offer interest. This has made investors think the Federal Reserve (Fed) might cut interest rates even more in 2025 – expectations are now at 66 basis points (bps) of easing, down a notch from 74 bps the previous day.
All eyes are now on the Federal Reserve’s (Fed) policy decision next week. Last Friday, Fed Chair Jerome Powell hinted at concerns, noting that “market measures of inflation expectations have moved up, driven by tariffs.” This suggests trade policies could reignite inflation.
On the data front, the University of Michigan (UoM) Consumer Sentiment Index delivered a disappointing result, while inflation expectations climbed higher, seemingly fueled by President Trump’s tariffs.
Looking ahead to next week, the US economic calendar is packed, featuring Retail Sales, housing figures, the Fed’s big policy call, and their economic forecasts.
Market Movers: Gold Calms Down as Dollar Softens
- US 10-year Treasury yields bounced back a bit, climbing five basis points to 4.320%.
- US real yields, measured by the 10-year Treasury Inflation-Protected Securities (TIPS) yield (which usually moves in the opposite direction to gold prices), jumped four and a half bps to 2.013%, according to Reuters.
- The US Dollar Index (DXY), which measures the dollar against six major currencies, dipped 0.14% to 103.71.
- The University of Michigan (UoM) Consumer Sentiment survey for March painted a gloomy picture, showing a sharp drop to 57.9 from 64.7 – way below the expected 63.1.
- Inflation worries are heating up: Americans now expect inflation to rise from 4.3% to 4.9% over the next 12 months. Looking further out, over five years, they anticipate inflation hitting 3.9%, up from 3.5%.
- Despite some recent promising inflation figures, economists are warning that tariffs on US imports could spark a fresh wave of inflation in the coming months.
- As of Wednesday midnight, President Trump’s 25% tariffs on steel and aluminum are now in effect, part of his push to shrink the trade deficit by slapping duties on imports.
XAU/USD Technical View: Gold’s $3,000 Struggle
After finally conquering the $3,000 mark, gold prices are taking a step back. It looks like the bulls are just catching their breath before trying again to push for a daily close above the record high of $3,004. Keep an eye on these resistance levels next: $3,050 and $3,100.
Looking the other way, the first support level to watch is $2,950. If that breaks, we could see a move down to $2,900, and then perhaps $2,850. Further down, there’s support at the February 28 low of $2,832.
Gold FAQs
Throughout history, gold has been a big deal, playing a key role as a safe place to keep value and as a way to pay for things. Even today, beyond its sparkle and use in jewelry, people see gold as a safe-haven investment, especially when times are uncertain. It’s also widely considered protection against inflation and when currencies lose value because gold doesn’t depend on any single company or government.
Central banks are the biggest gold hoarders. They often buy gold to back up their currencies when things get shaky. By diversifying their reserves and increasing their gold holdings, they aim to boost confidence in their economy and currency. Big gold reserves can signal that a country is financially sound. In 2022, central banks added a massive 1,136 tonnes of gold, worth about $70 billion, to their reserves, according to the World Gold Council. That’s the largest yearly purchase on record! Central banks in emerging economies like China, India, and Turkey are rapidly increasing their gold stockpiles.
Gold tends to move in the opposite direction to the US Dollar and US Treasuries, both of which are also seen as safe bets. So, when the Dollar weakens, gold usually goes up, offering investors and central banks a way to spread out their assets during turbulent times. Gold also has an inverse relationship with riskier investments like stocks. When the stock market is booming, gold prices often soften, but when risky markets are selling off, gold tends to shine brighter.
Lots of things can move gold prices. Geopolitical instability or fears of a serious recession can quickly send gold prices soaring because of its safe-haven status. As an asset that doesn’t pay interest, gold tends to do better when interest rates are lower, while higher interest rates usually put pressure on the price of gold. However, much of gold’s price movement depends on the US Dollar because gold is priced in dollars (XAU/USD). A strong dollar often keeps gold prices in check, while a weaker dollar is likely to push gold prices higher.
