Gold sinks as risk appetite improves on Trump-Powell calm, China tariff relief hopes
- Gold drops more than $100 from its daily high to $3,288 amid risk-on sentiment.
- Trump says he has “no intention” of firing Fed Chair Powell, calming markets.
- WSJ reports US mulling China tariff cuts; Bessent says no unilateral move yet.
Gold prices plunged more than 2.50% on Wednesday as risk appetite improved due to a possible de-escalation of US-China tensions and US President Donald Trump's statement that he doesn’t plan to fire Federal Reserve (Fed) Chair Jerome Powell. At the time of writing, XAU/USD trades at $3,288 after hitting a daily high of $3,386.
The narrative in the financial markets hasn’t changed. Tariffs continued to drive price action, and news that the US might slash duties on China sent US equities higher and Bullion prices tumbling.
An article in The Wall Street Journal suggested this, though US Treasury Secretary Scott Bessent poured cold water on traders’ mood. He said Trump has not offered to lower tariffs on Chinese products unilaterally, hinting that China must do its part.
On Tuesday, Trump said he had no intention of firing Powell and added, “The press runs away with things. No, I have no intention of firing him. I would like to see him be a little more active in his idea to lower interest rates.”
Amid these comments, Bullion edged lower as the Greenback recovered some ground. The US Dollar Index (DXY), which tracks the American currency value against a basket of six others, is up 0.09% at 99.72.
Regarding the chances of the Federal Reserve reducing interest rates at the upcoming meeting, traders see a 94% chance of keeping them unchanged, according to Prime Market Terminal. Nevertheless, traders expect the Fed funds rate to end at 3.45%, equal to 92 basis points of easing (bps).
Source: Primer Market Terminal
Daily digest market movers: Gold price tanks below $3,300 on risk-on sentiment
- The US 10-year Treasury yield gains two basis points to 4.371%.
- US real yields are edging up 1.5 bps to 2.099%, as shown by the yields on US 10-year Treasury Inflation-Protected Securities.
- Data-wise, S&P Global revealed that the US Manufacturing PMI in April improved from 50.2 to 50.7, contrary to other readings that dipped. The S&P Global Services PMI for the same period dipped from 54.4 to 51.4, below forecasts of 52.8.
- The US economic docket for the week includes Fed speakers, Durable Goods Orders, and the University of Michigan Consumer Sentiment final reading.
XAU/USD technical outlook: Gold price remains bullish despite retreating
Gold remains upward biased despite the ongoing pullback driving the yellow metal below $3,300 a troy ounce. Although it seems that sellers are in charge, they need to drag XAU/USD below the April 3 peak of $3,167, so they could test the next key support level, being the 50-day Simple Moving Average (SMA) at $3,032.
Conversely, if buyers reclaim $3,300, the next key resistance would be $3,450, followed by the $3,400 mark.
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.