• Gold price meets with a fresh selling pressure and erodes a part of Thursday’s recovery gains.
  • The US-China trade deal optimism continues to act as a headwind for the safe-haven commodity.
  • Fed rate cut bets keep the USD depressed and should help limit losses amid geopolitical risks.

Gold price (XAU/USD) remains depressed through the early European session on Friday and for now, seems to have stalled the previous day's sharp recovery from the $3,120 region, or the lowest level since April 10. The US-China trade truce for 90 days has eased some of the pressure on global markets and is seen as a key factor acting as a headwind for the safe-haven bullion. However, a combination of factors could offer some support to the commodity and help limit further losses.

Thursday's softer US macro data reaffirmed bets for more interest rate cuts by the Federal Reserve (Fed) and led to a further decline in the US Treasury bond yields. This keeps the US Dollar (USD) on the defensive for the second straight day and acts as a tailwind for the non-yielding Gold price. Apart from this, persistent geopolitical risk warrants some caution before placing fresh bearish bets around the XAU/USD pair, which remains on track to register heavy weekly losses.

Daily Digest Market Movers: Gold price struggles to lure buyers as trade optimism continues to undermine safe-haven demand

  • The US and China agreed to significantly lower tariffs and initiated a 90-day pause to finalize a broader deal, marking a de-escalation of a disruptive standoff between the world's two largest economies. Moreover, US President Trump pointed to ongoing negotiations with India, Japan, and South Korea.
  • Negotiators from Russia and Ukraine, as well as a delegation from the US, are currently in Istanbul, Turkey, for the first direct peace talks in three years. However, Russian President Vladimir Putin's absence has already dashed hopes for any breakthrough toward ending the prolonged war.
  • Meanwhile, Israel’s military intensifies its carnage across the Gaza Strip since dawn on Thursday, and the relentless assault, so far, has killed at least 143 Palestinians. This keeps geopolitical risks in play, which, along with the lack of any US Dollar buying interest, could support the safe-haven Gold price.
  • A duo of weaker economic reports released from the US on Thursday reaffirmed market bets for more interest rate cuts by the Federal Reserve this year. This, in turn, dragged the US Treasury bond yields sharply lower and undermined the buck, lending some support to the non-yielding yellow metal.
  • The US Producer Price Index for final demand fell 0.5% in April, marking the first monthly decline since 2023. This comes on top of softer US Consumer Price Index (CPI) on Tuesday, which rose at the lowest annual rate since February 2021, and further pointed to signs of easing inflationary pressures.
  • Separately, the US Department of Commerce reported that Retail Sales rose 0.1% in April compared to the previous month's upwardly revised growth of 1.7%. This increases the likelihood that the US economy will experience several quarters of sluggish growth and reaffirms dovish Fed expectations.

Gold price needs to break below the the $3,178-3,177 support for bears to regain near-term control

From a technical perspective, the goodish recovery move from over a one-month low falters near the 200-period Simple Moving Average (SMA) on the 4-hour chart, around the $3,252-3,255 zone, amid still negative oscillators on the daily chart. This makes it prudent to wait for strong follow-through buying before confirming that the XAU/USD pair's downfall witnessed over the past week or so has run its course and placing fresh bullish bets.

In the meantime, weakness back below the $3,200 mark might now find some support near the $3,178-3,177 region. Some follow-through selling could make the Gold price vulnerable to accelerating the slide back towards the overnight swing low, around the $3,120 area. The downward trajectory could extend further towards the $3,100 mark en route to the next relevant support near the $3,060 region.

On the flip side, the $3,252-3,255 area might continue to act as an immediate hurdle. A sustained strength beyond might trigger a fresh bout of short-covering rally and allow the Gold price to reclaim the $3,300 mark. The latter should act as a pivotal point, which, if cleared decisively, could negate any near-term negative bias and shift the bias in favor of bullish traders, paving the way for further gains.

US Dollar FAQs

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

Source: Fxstreet