- Gold prices surged on Monday as safe haven demand picked up.
- The credit rating downgrade of the US and tariff threats highlight investor sentiment.
- Predictions for Fed rate cuts continue to weaken the US dollar and support a range of products.
During Monday’s Asian trading session, the price of gold (XAU/USD) drew buyers, as traditional safe assets gained attention due to a surprising decline in appetite for riskier investments. Additionally, US Treasury Secretary Scott Bescent reaffirmed President Trump’s tariff threats, which further bolstered gold’s appeal. The US dollar has weakened amid expectations of further interest rate cuts by the Federal Reserve, making this a further factor supporting non-yielding gold.
Nonetheless, there’s some optimism surrounding a 90-day US-China trade pause, which might increase the desire for more trade agreements with other nations. It could mean that it’s wise to wait for a strong buying signal before concluding that XAU/USD has found a stable bottom, especially after last week’s recovery from around $3,120. In the absence of any significant US economic data, speeches from key FOMC members will likely influence USD movement and impact market dynamics.
Daily Digest Market Movement: Gold price gains as safe haven flows increase in weak US dollars. Not sure about the bullish trend.
- Moody’s downgraded the US sovereign credit rating to “AA1,” a notch lower, on Friday, just as a House committee may approve President Trump’s tax cut bill which would add trillions to the national debt.
- US Treasury Secretary Bescent informed CNN on Sunday that President Trump would proceed with previously threatened tariffs against trading partners who don’t negotiate fairly, further supporting gold prices as the week began.
- Recent data from the US Consumer Price Index (CPI) and Producer Price Index (PPI) suggested easing inflation, while disappointing retail sales figures raised fears of an economic slowdown in upcoming quarters.
- A survey by the University of Michigan indicated that consumer sentiment fell significantly in May, dropping from April’s reading of 52.2 to its lowest since June 2022.
- The US dollar struggles to find buyers due to dovish Fed expectations, which may benefit other assets. Still, trade optimism softens recession fears, tempering the advantages for the XAU/USD pairing.
- On a geopolitical note, Israeli Prime Minister Netanyahu announced that troops would provide limited food supplies to Gaza, although indirect talks with Hamas reportedly showed no progress.
- Ukraine reported that Russia launched an unprecedented number of drone attacks, which maintains geopolitical risks and could support precious metals ahead of important speeches from FOMC members, given the lack of relevant US economic data.
Gold prices need to hold above the 200-period SMA on a 4-hour chart for bulls to take charge.
From a technical viewpoint, gold prices appear to be facing challenges in breaking through resistance that has now turned into support at the 200 Simple Moving Average (SMA) on the 4-hour chart. It might be prudent to wait for some convincing follow-through buying past the $3,250-3,252 supply zone before asserting that gold has stabilized for potential gains. A sustained movement could push prices above the $3,274-3,275 range and toward the round figure of $3,300, which could act as a significant level. Clearing this would likely change the short-term bearish outlook and favor bullish traders, opening doors for further gains.
On the flip side, if there’s a dip below the $3,200 level, support may be found around the $3,178-$3,177 area. A bit of follow-through selling could leave gold susceptible to declines toward last week’s swing low at $3,120 or towards the April 10th low at $3,100. A break below this level would bring into play the next relevant support near $3,060.
