- Gold price attracts some sellers for the second straight day amid receding safe-haven demand.
- A stronger USD further exerts pressure on the commodity amid signs of easing trade tensions.
- Fed rate cut bets might cap the USD and help limit losses for the non-yielding yellow metal.
Gold price (XAU/USD) attracts sellers for the second successive day and drops closer to the $3,300 mark during the Asian session on Wednesday, though it lacks follow-through. The optimism over signs of easing US-China trade tensions and US President Donald Trump’s decision to give flexibility on tariffs to US carmakers remains supportive of a positive risk tone. This, along with a modest US Dollar (USD) uptick, contributes to the offered tone surrounding the precious metal.
Meanwhile, investors remain worried about Trump’s rapidly shifting stance on trade policies, which led to a massive pivot away from US assets recently. This, along with the growing acceptance that the Federal Reserve (Fed) will resume its rate-cutting cycle soon, might hold back the USD bulls from placing aggressive bets and act as a tailwind for the non-yielding yellow metal. Traders now look to key US macro releases for a fresh impetus during the latter part of the week.
Daily Digest Market Movers: Gold price remains depressed amid receding safe-haven demand and modest USD strength
- President Donald Trump signed an order on Tuesday to ease tariff effects on the auto industry, giving carmakers two years to increase the share of domestic parts in US-assembled vehicles. This adds to the optimism over progress on trade negotiations and signs of the potential de-escalation of US-China trade tensions.
- The US Dollar attracts some buyers for the second straight day and also acts as a headwind for the Gold price. Investors, however, remain on the edge as Trump’s erratic trade policies continue to fuel worries about a sharp economic slowdown. Moreover, bets that the Federal Reserve will resume its rate-cutting cycle soon should cap any meaningful USD upside.
- Dovish Fed expectations were reaffirmed by the disappointing US Job Openings and Labor Turnover Survey (JOLTS) and the US Conference Board’s Consumer Confidence Index released on Tuesday. In fact, the US Bureau of Labor Statistics (BLS) reported that US job openings fell to 7.19 million by the last day of March from 7.480 million in the previous month.
- Adding to this, the US Consumer Confidence Index slumped to 86.0 in April, or a nearly five-year low. Furthermore, the Present Situation Index and the Expectations Index dropped to 133.5 and 54.4, respectively, during the reported month. The data strengthens the case for more aggressive policy easing by the Fed and should support the non-yielding yellow metal.
- On the geopolitical front, Russia dismissed Ukraine’s proposal to extend Russian President Vladimir Putin’s unilateral three-day ceasefire to 30 days. Moreover, the US threatened to stop its efforts to end the conflict between Russia and Ukraine if both parties didn’t deliver concrete proposals. This further contributes to limiting the downside for the XAU/USD pair.
- Traders now look to Wednesday’s US economic docket – featuring the ADP report on private-sector employment, the Advance Q1 GDP print, and the Personal Consumption and Expenditure (PCE) Price Index. This, along with the US Nonfarm Payrolls report on Friday, should provide cues about the Fed’s policy outlook and influence the commodity in the near term.
Gold price could aim to retest the $3,265-3,260 pivotal support once the $3,300 mark is broken decisively
Technical indicators on the daily chart hold comfortably in the positive territory and favor the XAU/USD bulls. Hence, any further weakness below the $3,300-3,290 immediate support, representing the 38.2% Fibonacci retracement level of the latest leg up from the vicinity of mid-$2,900s or the monthly swing low, might continue to find decent support near the $3,265-3,260 zone. A convincing break below the latter, however, would set the stage for an extension of the recent pullback from the all-time peak touched last week. The downward trajectory might then drag the Gold price to the 50% retracement level, around the $3,225 region, en route to the $3,200 mark.
On the flip side, the Asian session high, around the $3,328 region, could act as an immediate hurdle ahead of the $3,348-3,353 area. This is closely followed by the $3,366-3,368 supply zone, which if cleared should allow the Gold price to reclaim the $3,400 mark. The momentum could extend further toward the $3,425-3,427 intermediate hurdle before bulls make a fresh attempt to conquer the $3,500 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.
