- Gold price enters a bullish consolidation phase after hitting a fresh all-time peak on Thursday.
- A modest USD bounce and a positive risk tone cap the commodity amid overbought conditions.
- US-China trade war concerns, recession fears, and Fed rate cut bets support the XAU/USD pair.
Gold price (XAU/USD) attracts some intraday sellers following an Asian session uptick to a fresh all-time high as a positive risk tone is seen undermining demand for traditional safe-haven assets. Furthermore, a modest US Dollar (USD) bounce from the vicinity of a multi-year low turns out to be another factor undermining the commodity. Any meaningful corrective decline for the precious metal, however, seems elusive amid persistent uncertainty around US President Donald Trump’s tariff announcements, the escalating US-China trade war, and global recession fears.
Meanwhile, the markets are still pricing in the possibility that the Federal Reserve (Fed) will resume its rate-cutting cycle in June and lower borrowing costs at least three times this year. This might hold back the USD bulls from placing aggressive bets and contribute 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 bullion has topped out in the near term. Traders now look forward to the second-tier US macro data and Fed speak to grab short-term opportunities later this Thursday.
Daily Digest Market Movers: Gold price bulls pause for a breather amid receding safe-haven demand
- The US Census Bureau reported on Wednesday that Retail Sales climbed 1.4% in March, the most in over two years. The reading followed a revised 0.2% increase in the previous month and was better than the market expectation for a 1.3% rise.
- Adding to this Federal Reserve Chair Jerome Powell said the US central bank was not inclined to cut interest rates in the near future, citing the potential inflationary pressure stemming from US President Donald Trump’s aggressive tariffs policies.
- Meanwhile, the equity market in Asia-Pacific largely advanced on Thursday, which, along with the emergence of some US Dollar (USD) buying, holds back traders from placing fresh bullish bets and caps the upside for the Gold price.
- US President Donald Trump kickstarted a bitter trade war with China earlier this month and raised tariffs to an unprecedented 145%. China retaliated with 125% duties on US goods and imposed new export licensing restrictions on seven rare earths.
- The US government also imposed new licensing requirements and limited exports of H20 artificial intelligence chips to China. Meanwhile, China’s Foreign Ministry said that Beijing will pay no attention if the US continues to play the tariff game.
- Investors remain worried that tit-for-tat tariffs the world’s two countries are imposing on one another will hinder global economic growth. This keeps a lid on any optimism in the market and continues to support the safe-haven commodity.
- Moreover, traders are still pricing in the possibility that the US central bank will resume its rate-cutting cycle in June. This holds back the USD bulls from placing aggressive bets and further acts as a tailwind for the non-yielding yellow metal.
- Traders now look forward to the US economic docket – featuring the release of the usual Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and housing market data – and Fed-speak to grab short-term opportunities.
Gold price constructive technical setup supports prospects for the emergence of some dip-buyers
From a technical perspective, the daily Relative Strength Index (RSI) is holding above the 70 mark and flashing overbought conditions. This makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for an extension of a well-established uptrend witnessed over the past four months or so. In the meantime, any corrective pullback could be seen as an opportunity to initial fresh bullish positions and is more likely to remain cushioned near the $3,300 mark. The latter should act as a key pivotal point, which if broken decisively could pave the way for deeper losses.
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.
