- Gold price catches fresh bids on rising global trade tensions and recession fears.
- Bets for multiple Fed rate cuts weigh on the USD and support the precious metal.
- Rising US bond yields could act as a headwind ahead of FOMC meeting minutes.
Gold price (XAU/USD) climbs further beyond the $3,000 psychological mark during the Asian session on Wednesday and retests the overnight swing high as concerns about a tariffs-driven global recession continue to underpin safe-haven assets. Adding to this, rising bets that the Federal Reserve (Fed) will resume its rate-cutting cycle in May and deliver multiple rate reductions by the end of this year weigh on the US Dollar (USD), lending additional support to the non-yielding yellow metal.
Meanwhile, speculation that China is dumping US Treasuries in retaliation to the sweeping US tariffs continues to push the US bond yields higher. This might hold back traders from placing fresh bullish bets around the Gold price and cap any further gains. Investors now look forward to the release of FOMC minutes later this Wednesday. This, along with the US inflation figures this week, might provide cues about the Fed’s rate-cut path, which will drive the USD and the XAU/USD pair.
Daily Digest Market Movers: Gold price is underpinned by US tariffs-inspired global flight to safety
- The White House press secretary Karoline Leavitt confirmed that the US will proceed with a sweeping 104% tariff on Chinese imports starting this Wednesday. This continues to fuel worries that an all-out trade war would push the global economy into recession, which triggers a fresh wave of the risk-aversion trade and revives demand for the safe-haven Gold price.
- Investors ramped up their bets that a tariffs-driven US economic slowdown could force the Federal Reserve (Fed) to resume its rate-cutting cycle soon. In fact, the CME Group’s FedWatch Tool suggests that traders are pricing in over a 60% chance that the Fed will lower borrowing costs in May. Moreover, the US central bank is expected to deliver five rate cuts in 2025.
- This, in turn, drags the US Dollar lower for the second straight day despite the overnight hawkish comments from Fed officials. In fact, San Francisco Fed President Mary Daly said on Tuesday that the policy is in a very good place and modestly restrictive. Daly further noted that inflation pressure from widespread tariffs is an increasing concern.
- Separately, Chicago Fed President Austan Goolsbee said that US tariffs are way bigger than anticipated and pose a real risk to US importers who have very few fallback options. The relationship of sentiment to spending isn’t as strong as before and It’s not obvious how the Fed would react to negative supply shock, Goolsbee added further.
- Investors now look forward to the release of minutes from the Fed’s last policy meeting. Apart from this, the US Consumer Price Index (CPI) and the Producer Price Index (PPI) on Thursday and Friday, respectively, will be scrutinized for cues about the Fed’s policy path. This, in turn, will drive the USD in the near term and influence the XAU/USD pair.
Gold price could accelerate the intraday positive move once the $3,022-3,023 hurdle is cleared decisively
From a technical perspective, the recent sharp decline from the record high stalled near the 61.8% Fibonacci retracement level of the February-April move-up. The said support is pegged near the $2,957-2,956 area, or a multi-week low touched on Monday and is closely followed by the 50-day SMA, currently around the $2,952 region. A convincing break below the latter will be seen as a fresh trigger for bearish traders and drag the Gold price to the next relevant support near the $2,920 horizontal zone en route to the $2,900 round figure.
On the flip side, momentum beyond the overnight swing high, around the $3,023 area, could push the Gold price to the $3,055-3,056 barrier. Some follow-through buying should pave the way for a move towards reclaiming the $3,100 mark, with some intermediate hurdle near the $3,075-3.080 region.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
