- Gold prices surged to around $3,400 amid uncertainty in US-China trade relations, accompanied by a slight increase in Fed stakes.
- Weak US ADP Employment and Services PMI data are impacting US Treasury yields.
- The likelihood of the Fed making interest rate cuts in July has seen a minor uptick.
Gold Price (XAU/USD) has climbed to nearly $3,400, marking a new four-week peak during Thursday’s European trading session. The metal’s rise is largely due to growing uncertainties surrounding trade agreements between the US and China, which has heightened the demand for safe-haven assets.
On Wednesday, US President Donald Trump expressed in a post his feelings towards President Xi of China, saying, “I like President XI of China, and I always will, but he is extremely difficult to negotiate with!”
Another factor propelling gold prices upward is the notable dip in US bond yields. When yields on interest-bearing assets fall, it generally boosts demand for non-yielding assets like gold. Recently, the US Treasury yield fell to about 4.35%, marking a four-week low.
US bonds experienced a decline on Wednesday, largely due to disappointing economic data that reflected a sharp slowdown in private sector labor demand. The ADP reported only 37,000 new jobs added in the private sector, the lowest figure since January 2021. Additionally, the ISM Services PMI report indicated an unexpected drop in expectations for service sector activities.
Soft economic data has slightly raised expectations regarding a potential shift in the Federal Reserve’s policy during its July meeting. According to the CME FedWatch tool, the chances of the Fed cutting interest rates in July increased to 30%, up from 22.5% just a week earlier.
Lower interest rates, if they happen, could further benefit non-yielding assets like gold.
Gold Technical Analysis
Gold prices have reached nearly $3,400 on Thursday. The yellow metal appears to be gaining traction after stabilizing along a rising trendline drawn from a high of $2,726 on December 12. Short-term trends for precious metals appear bullish, with the 20-day exponential moving average (EMA) resting around $3,317.
The 14-day relative strength index (RSI) is approaching 60.00. If it surpasses that threshold, it could indicate new bullish momentum.
Looking ahead, gold prices could potentially rise to $3,440 near May 7, and breaching the $3,400 mark might push it up to the psychological level of $3,500.
Conversely, if gold falls below the May 29 low of $3,245, it could drop towards support around $3,200, with the May 15 low of $3,121 being another potential target.
Gold Daily Chart
Gold FAQ
Gold has been significant throughout history as a medium of exchange and value. Beyond its luster and applications, it is now often viewed as a safe haven asset. In turbulent times, many consider gold a solid investment. It also acts as a hedge against inflation and currency devaluation since it isn’t tied to any specific government or issuer.
Central banks, as major holders of currency, often buy gold to bolster reserves in unstable times. This is thought to enhance the perceived strength of both the economy and the currency. In 2022, they added 1,136 tonnes to their reserves, valued roughly at $70 billion, marking the highest annual purchase since records began. Countries like China, India, and Türkiye are notably increasing their gold reserves.
Gold generally has an inverse relationship with the US dollar and US Treasury bonds—both considered safe havens. As the dollar weakens, gold tends to rise, prompting diversification among investors. Moreover, gold’s price often goes up during downturns in the stock market but may drop when stocks are performing well.
Various factors influence gold prices. Fears of geopolitical instability or severe recession can quicken the climb in gold prices, as it remains a non-yielding asset. Generally, low interest rates support gold prices while high rates tend to press them down. Additionally, movements frequently hinge on the performance of the US dollar, as gold is priced in dollars. A strong dollar keeps gold prices low, while a weak dollar enables them to rise.
