- Gold prices attract buyers for the second day in a row, but there is no follow-through.
- Trade jitter, Fed rate reduction bets, and fear of recession support safe stocked goods.
- A positive risk tone and the emergence of US dollars to buy caps in Xau/USD pairs.
Gold Price (XAU/USD) will be trading above the $3,025 level, sticking to positive bias throughout the first half of Wednesday's European session, but there is no bullish confidence. The uncertainty over US President Donald Trump's so-called mutual tariff announcements on April 2 proved to be an important factor that continues to support Safe Haven bullion. Additionally, the Federal Reserve forecast for a 25-based point rate reduction of 25 basis points by the end of this year will further benefit non-two yellow metals.
However, following an overnight pullback from nearly three weeks of high, the advent of US dollar (USD) purchases prevent traders from actively placing bullish bets on gold prices. Apart from this, generally positive risk tones contribute to reducing the rise in the Xau/USD pair. Traders look forward to ordering some impulses on US personal consumption spending (PCE) price index release on Friday, but the market focus remains glued to the US durable product order data.
Daily Digest Market Movement: Gold Prices are supported by US tariff fear
- After data released on Tuesday was released, the US dollar showed that the conference committee's US consumer confidence index fell for the fourth consecutive month, falling to a four-year low of 92.9. The survey also found that the expectations index fell to a lowest level in 65.2 or 12 years, well below the 80 threshold, which is usually a recession.
- This comes after the Federal Reserve revised its growth outlook down last week amid uncertainty over the impact of US President Donald Trump's trade policy. Additionally, the US mutual tariffs scheduled to be imposed on April 2 should help alleviate more targeted inflation concerns, allowing the US central bank to maintain its reduction rates and bring profits to unparalleled gold prices.
- In fact, the Fed had informed us that interest rate reductions of 25 basis points by the end of this year. However, the market is pricing that the US Central Bank may reduce borrowing costs at its June, July and October policy meetings. This overshadowed Hawkish's comments from Fed Governor Coogler, saying she supports her stabilizing interest rates for a while.
- Meanwhile, Trump has imposed secondary tariffs on Venezuela, saying that countries that buy oil or gas from Venezuela will face 25% tariffs when trading with the US. Additionally, Trump is expected to announce so-called retaliatory tariffs. This announces offsetting taxes on US goods and will be enacted on April 2nd to approximately 15 major US trading partners to keep investors.
- Russia and Ukraine have reached an agreement to halt military strikes on the Black Sea and energy infrastructure following US-mediated negotiations. Separately, the latest optimism about China's stimulus aimed at promoting consumption supports a general positive tone on the stock market. This prevents the Xau/USD Bulls from making aggressive bets.
- Traders are currently looking forward to the release of their durable US product orders on Wednesday. This should provide some impulse to the US dollar and merchandise, along with speeches by influential FOMC members. However, the focus remains glued to the US Personal Consumption Expense (PCE) price index, providing clues about the Fed's rate cut path and driving precious metals.
The gold price seems even more grateful. $3,000 support holds the key
From a technical standpoint, bullish resilience near the $3,000 mark and subsequent promotions suggest that the path of gold price minimum resistance, along with the positive oscillators on the daily chart, is upside down. Buying past the $3,036 area and over the overnight swing high reaffirms the constructive outlook and lifts the $3,057-3,058 zone XAU/USD pair mentioned last week towards its highest ever peak.
Conversely, the $3,000 mark should continue to protect the immediate downside of gold prices and serve as an important key point. The following compelling breaks could encourage technical sales and drag the Xau/USD pair into the $2,982-$2,978 region. The revised decline could expand further towards the next related support, near the $2,956-$2,954 resistance breakpoint.
US Dollar FAQ
The US dollar (USD) is the official currency of the United States and is “effectively” currency in a considerable number of other countries in circulation along with local notes. According to data from 2022, it is the most frequently traded currency in the world, accounting for more than 88% of global forex sales, or an average of $6.6 trillion per day. After World War II, the US dollar took over the global reserve currency from the British pound. For much of its history, the US dollar was supported by gold, but in 1971 there was the Bretton Woods Agreement, which lost its gold standard.
The single most important factor affecting the value of the US dollar is monetary policy shaped by the Federal Reserve. The Fed has two tasks: achieving price stability (control inflation) and promoting full employment. The main tool to achieve these two goals is adjusting interest rates. When prices rise rapidly and inflation exceeds the Fed's 2% target, the Fed will raise interest rates and help the USD value. If inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which is heavier on the greenback.
In extreme circumstances, the Federal Reserve could also print more dollars and enact quantitative easing (QE). QE is a process that dramatically increases the credit flow in the financial system where the Fed has been stuck. This is a non-standard policy measure used when credits run out (due to the fear of counterparty defaults) as banks are not lending to each other. If you're not likely to achieve the desired outcome simply by lowering your interest rates, this is a last resort. Fed combating the credit crunch that occurred during the 2008 financial crisis was a weapon of choice for the Fed. It involves printing Fed prints in more dollars and using them to buy US government bonds primarily from financial institutions. QE usually weakens the US dollar.
Quantitative tightening (QT) is the reverse process in which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest principal from mature bonds with new purchases. Usually, it's positive for US dollars.
