- Gold price edges higher in Wednesday’s early European session.
- Trade war concerns among investors boost the safe-haven flows, benefiting the Gold price.
- Investors brace for The US January New Home Sales and Fedspeak later on Wednesday.
The Gold price (XAU/USD) recovers some lost ground after reaching a one-week low in the previous session. The uncertainty and ongoing fears of instability around US President Donald Trump's tariff plans provide some support to the yellow metal, a traditional safe-haven asset.
Nonetheless, analysts believe that Trump’s plans for higher tariffs have raised inflation worries at the US Federal Reserve (Fed), which might convince the US central bank to keep interest rates higher for longer. This, in turn, might cap the upside for the precious metal as higher interest rates tarnish non-yielding gold's appeal.
The US New Home Sales for January will be released later on Wednesday. Also, the Fed officials, including Raphael Bostic and Thomas Barkin are set to speak on the same day. On Friday, all eyes will be on the release of the US Personal Consumption Expenditures (PCE) - Price Index for January.
Gold price gains momentum as trade war fears persist
- Trump signed another Executive Order late Tuesday, signaling for the US Commerce Department to launch an official "probe" into Copper markets.
- Trump stated late Monday that tariffs on Canadian and Mexican imports were "on time and on schedule" despite efforts by the countries to beef up border security and halt the flow of fentanyl into the US ahead of a March 4 deadline, per Reuters,
- The US consumer confidence fell the most since August 2021, declining to 98.3 in February versus 105.3 prior, according to the Conference Board.
- Richmond Fed President Thomas Barkin said late Tuesday that he will follow a wait-and-see approach regarding central bank interest rate policy until it is clear inflation is returning to the Fed's 2% goal.
- Dallas Fed President Lorie Logan stated that it would be appropriate in the medium term for the Fed to buy more shorter-term securities than longer-term ones so that its portfolio can more quickly mirror the composition of Treasury issuance, per Bloomberg.
Gold price keeps the bullish tone despite consolidation in the shorter term
Gold price edges higher on the day. In the near term, the precious metal remains capped in the narrow trading range. However, the bullish outlook of the Gold price remains intact on the daily chart, with the price holding above the key 100-day Exponential Moving Average (EMA). Furthermore, the 14-day Relative Strength Index (RSI) stands above the midline near 64.0, indicating that the path of least resistance is to the upside.
The all-time high of $2,957 appears to be a tough nut to crack for the Gold bulls. An upside break from the mentioned level could set off a move to the next bullish levels at $2,980, the upper boundary of the Bollinger Band, en route to the $3,000 psychological level.
In the bearish case, the low of February 25 at $2,888 acts as an initial support level for the yellow metal. Extended losses could pave the way to $2,795, the lower limit of the Bollinger Band. The key contention level to watch is $2,718, the 100-day EMA.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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