Gold off from fresh all-time highs on progress in US-Japan trade talks
- Gold price retraces to near $3,310 as US President Trump signaled progress in trade talks between Washington and Japan.
- The US-China dignity war will keep the downside of the Gold price limited.
- US-Japan trade talks and Fed Powell’s hawkish remarks have offered some relief to the US Dollar.
Gold price (XAU/USD) corrects slightly to near $3,312 in Thursday’s European session after hitting a fresh all-time high of $3,358 earlier in the day. The precious metal faces profit-booking as meaningful progress in trade negotiations between the United States (US) and Japan has offered some relief on fears of potential global economic turmoil.
“A Great Honour to have just met with the Japanese Delegation on Trade. Big Progress!” US President Donald Trump wrote in a post on TruthSocial platform on Wednesday.
Positive development in trade talks between Washington and Tokyo indicates that US President Trump has used the tariff tool to have a dominant position while negotiating bilateral deals with his trading partners. This has resulted in a slight ease in global market uncertainty.
However, investors should refrain from going all in on Gold price shorts as the intensified trade war between the US and China is sufficient to keep the risk-appetite theme at bay. Precious metals tend to perform better in heightened global economic tensions.
The tussle between the US and China has become more of a battle of dignity than a scale of tariffs. The US wants China to initiate trade talks first, citing that they need our money. Meanwhile, China is willing to come to the table, but with respect and mutual interest. On Tuesday, White House press secretary Karoline Leavitt said that the President wants China to go first for trade talks. "The ball is in China’s court: China needs to make a deal with us, we don’t have to make a deal with them,” Leavitt said.
Daily digest market movers: Gold price falls while US Dollar ticks higher
- Gold price is off from its all-time high of $3,358 on Thursday. The slight correction in the precious metal's price is also driven by a nominal recovery in the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, attracts bids near the three-year low of 99.00 and moves higher to near 99.50, at the time of writing.
- Trump’s preference for trade talks over imposition of hefty reciprocal tariffs has lightened uncertainty across the globe, which is clear from a slight recovery move in the US Dollar. Technically, a higher US Dollar makes investment in Gold expensive for investors.
- The USD Index faced a ruthless sell-off in the past few months as market experts became highly pessimist on the US economic growth in the face of Trump’s tariff policies. Market participants anticipated that the imposition of higher duties on all imports into the US would lead to an increase in inflation and impact economic growth.
- Additionally, a slight hawkish commentary from Federal Reserve (Fed) Chair Jerome Powell at the Economic Club in Chicago on Wednesday offered some relief to the US Dollar. Powell signaled that the US economy is still firm despite Trump’s economic policies have stemmed economic risks. “US economy is solid despite heightened uncertainty, downside risks,” Powell said. He was confident that the economy is still in a position to wait for greater clarity, which gives them confidence to avoid any monetary policy adjustments.
Technical Analysis: Gold price stays above key EMAs
Gold price edges lower from its all-time highs of $3,358 on Thursday. However, the overall outlook of the Gold price remains bullish as all short-to-long Exponential Moving Averages (EMAs) are sloping higher.
The 14-day Relative Strength Index (RSI) trades above 70.00, suggesting a strong bullish momentum.
Looking down, the 20-day EMA near $3,135.50 will act as a key support zone for the pair. On the upside, the round-level resistance of $3,400 will act as a key resistance zone.
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.