- Gold price retreats after touching a fresh all-time peak in reaction to Trump’s reciprocal tariffs on Wednesday.
- The XAU/USD bulls pause for a breather and opt to take profits off the table amid bearish divergence on RSI.
- Fed rate cut bets and tumbling US bond yields drag the USD to a fresh YTD low, lending support to the commodity.
Gold price (XAU/USD) extends its steady intraday pullback from the all-time peak touched this Thursday, though it manages to hold above the $3,100 mark through the early European session. Bullish traders opt to take some profits off the table and lighten their bets around the commodity amid slightly overbought conditions. However, persistent worries about the potential economic flout from US President Donald Trump’s sweeping reciprocal tariffs should act as a tailwind for the safe-haven precious metal.
Meanwhile, the risk-off mood, along with expectations that a tariff-driven slowdown in the US economy might force the Federal Reserve (Fed) to resume its rate cutting cycle soon, triggers a steep decline in the US Treasury bond yields. This, in turn, drags the US Dollar (USD) to its lowest level since October 2024 and contributes to limiting the downside for the non-yielding Gold price. Hence, it will be prudent to wait for strong follow-through selling before confirming that the XAU/USD has topped out.
Daily Digest Market Movers: Gold price struggles to capitalize on intraday gains inspired by Trump’s tariffs
- US President Donald Trump imposed a 10% baseline tariff on all imports and higher duties on some of the country’s biggest trading partners, sending shockwaves through global financial markets. In response, China’s Commerce Ministry stated that it will resolutely take countermeasures to safeguard its rights and interests.
- The developments raise the risk of a widening trade war, which could upset global free trade and impact negatively on the world economy. This, in turn, boosted demand for traditional safe-haven assets. Apart from this, the emergence of heavy US Dollar selling pushes the Gold price to a fresh record high on Thursday.
- Investors now seem worried that Trump’s protectionist policies could potentially send the US economy into a recession and are pricing in a 70% chance that the Federal Reserve (Fed) will lower borrowing costs in June. Moreover, the anti-risk flow drags the US Treasury bond yields lower across the board, undermining the USD.
- On the economic data front, the US ADP reported on Wednesday that private-sector employers added 155K jobs in March – far more than the 105K expected and the previous month’s revised reading of 84K. This, however, did little to impress the USD bulls amid concerns about the economic fallout from Trump’s trade policies.
- Traders now look forward to the US economic docket – the release of the usual Weekly Jobless Claims and the US ISM Services PMI. Apart from this, trade-related headlines might influence the USD and provide some impetus to the XAU/USD pair ahead of the closely-watched US Nonfarm Payrolls (NFP) report on Friday.
Gold price needs to break below the $3,100 mark to support prospects for any meaningful corrective fall
From a technical perspective, the Relative Strength Index (RSI) on the daily chart continues to flash overbought conditions and holds back the XAU/USD bulls from placing fresh bets. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for an extension of a multi-month-old strong uptrend. Nevertheless, the broader setup seems tilted firmly in favor of bullish traders and suggests that the path of least resistance for the Gold price remains to the upside.
Hence, any corrective slide below the Asian session low, around the $3,123 area, could be seen as a buying opportunity. This, in turn, should help limit the downside for the XAU/USD pair near the $3,100 mark, which should now act as a key pivotal point. A convincing break below, however, might prompt some long-unwinding and drag the Gold price to the $3,076 area, or the weekly swing low touched on Monday, en route to the $3,057-3,058 region, the $3,036-3,035 zone and the $3,000 psychological mark.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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