Gold price seems vulnerable below $3,300 amid tariffs news, stronger USD
- Gold price attracts sellers for the fourth consecutive day amid the tariffs-block news.
- Sustained USD buying and hawkish FOMC Minutes weigh further on the XAU/USD pair.
- US-China trade tensions and geopolitical risks help limit losses for the precious metal.
Gold price (XAU/USD) touched a one-and-a-half week low, around the $3,246-3,245 area during the Asian session on Thursday in reaction to the news that a federal court blocked US President Donald Trump's trade tariffs from going into effect. The ruling led to a sharp bounce in risk trade and weighed heavily on traditional safe-haven assets, which, in turn, is seen as a key factor exerting pressure on the bullion for the fourth consecutive day.
The tariffs-block news comes on top of hawkish FOMC Minutes released on Wednesday, which assists the US Dollar (USD) to attract strong follow-through buying and contributes to driving flows away from the non-yielding Gold price. That said, the uncertainty surrounding US trade policies and the worsening US fiscal situation keep a lid on the market optimism and the USD, assisting the XAU/USD pair to trim a part of intraday losses.
Daily Digest Market Movers: Gold price continues to lose ground amid a combination of negative factors
- A US federal court on Wednesday blocked US President Donald Trump's "Liberation Day" tariffs from going into effect. The Court of International Trade ruled that the president overstepped his authority by imposing across-the-board duties on imports from every country in the world.
- Investors cheered the court's order, which is evident from a sharp rise in the equity markets on Thursday. This, in turn, is seen weighing heavily on traditional safe-haven assets and dragging the Gold price lower for the fourth successive day amid a strong follow-through US Dollar buying.
- The better-than-expected US macro data this week calmed recession fears. Adding to this, Minutes of the Federal Reserve's May meeting released on Wednesday revealed a consensus to maintain the wait-and-see stance on rates amid the uncertainty over the economic outlook and trade policies.
- Fed officials highlighted the need to keep interest rates on hold for some time until the net economic effects of the array of changes to government policies become clearer. This, in turn, lifts the USD Index (DXY) beyond the 100 mark and undermines the non-yielding yellow metal.
- Meanwhile, the Trump administration is reportedly moving to restrict the sale of critical US technologies, including those used in the manufacturing of semiconductors, and certain chemicals, to China. This, along with persistent geopolitical risks, offers support to the XAU/USD pair.
- Israel's defence minister Israel Katz announced on Wednesday that their fighter jets struck the target of the Houthi militant group at Yemen’s Sanaa airport for the second time in a month. This strike comes after the Houthis had fired several missiles at Israel in recent days.
- Russia has proposed holding the next round of direct peace talks with Ukraine in Istanbul on June 2 amid rising pressure from Trump to end the war. Russian sources said that President Vladimir Putin wants a written pledge by Western powers not to enlarge the US-led NATO alliance eastwards.
- Traders now look forward to Thursday's US economic docket – featuring the release of the Prelim Q1 GDP print, Weekly Initial Jobless Claims, and Pending Home Sales. The focus, however, remains on the US Personal Consumption Expenditure (PCE) Price Index on Friday.
Gold price technical setup favors bearish traders and suggests that any attempted recovery could be sold into
From a technical perspective, the intraday downfall stalls near the 50% retracement level of the recent goodish recovery from the monthly swing low. However, Wednesday's breakdown below a short-term ascending trend line and the 200-period Simple Moving Average (SMA) on the 4-hour chart favor bearish traders. Adding to this, negative oscillators on the said timeframe suggest that the path of least resistance for the Gold price is to the downside.
Hence, any subsequent recovery is more likely to confront a stiff barrier and remain capped ahead of the $3,300 mark, or the 200-period SMA on the 4-hour chart. However, some follow-through buying, leading to a further move beyond the 23.6% Fibonacci retracement level, might trigger a short-covering rally and lift the Gold rice to the $3,324-3,325 hurdle en route to the next relevant resistance near the $3,345-3,350 supply zone.
On the flip side, bearish traders might now wait for sustained weakness below the Asian session low, around the $3,246-3,245 region (50% retracement level), before placing fresh bets. The subsequent fall might then drag the Gold price to the 61.8% Fibo. retracement level, around the $3,215 region. The downward trajectory could extend towards the $3,200 round figure before the XAU/USD eventually drops to the $3,180 support.
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.