- Gold price sinks over 5% after hitting a new all-time high at $3,500 on Tuesday.
- US President Trump hints on lowering tariffs for China and confirms Fed’s Powell to stay in function.
- Markets buy into the turnaround, with equities and bonds higher, safe haven Gold punished.
Gold price (XAU/USD) heads towards $3,322 on Wednesday at the time of writing, in a second day of profit taking. The profit taking picked up on comments from United States (US) President Donald Trump, who did a 180-degree turn on his stance on China and the Federal Reserve (Fed). After the closing bell, Tesla’s (TSLA) Chief Executive Officer Elon Musk said he will reduce his role at the Department of Government Efficiency (DOGE).
President Trump rebuked earlier statements in which he was seeking to fire Fed Chair Jerome Powell to say now that he has no intention to fire him despite his frustration with the Fed not moving more quickly with the interest rate cuts, the Wall Street Journal reported. The president went on to say that he will be “very nice” to China in any trade talks and that tariffs will drop if the two countries can reach a deal. Final tariffs on China would not be near 145%, but much lower, he said, Bloomberg reports.
Daily digest market movers: Tactical softening for research analysts
- Gold has dipped in relation to Bitcoin this week, but its long-term trend of outperformance is expected to extend on demand for its safe-haven qualities. Investors will be expecting more sound bites from US leaders, which will muddy the outlook in the days ahead, Bloomberg reports.
- Central banks will keep buying Gold in a push to diversify from paper currencies amid the current political and economic upheaval, according to billionaire hedge-fund manager John Paulson, Reuters reports.
- “Gold’s tactically very overbought and extended – it’s risen $500 plus in 8 trading days, so naturally there’s likely a mix of a buyers’ pause and some risk reduction,” said Nicky Shiels, head of research and metals strategy at MKS Pamp SA, Bloomberg reports.
Gold Price Technical Analysis: Will China take the bait?
The precious metal sees its Relative Strength Index (RSI) come back in the normal trading range after having spent several days in the overbought area. Some more profit taking would make sense given the softer rhetoric from President Trump. Currently at around 63, it would make sense for the RSI to fall back to 50 with the Gold price probably looking for support near $3,167, the pivotal level from early April.
The daily Pivot Point on the upside at $3,415 is the first level of resistance, which is quite far away and would mean Gold reverses in full and even turns positive on the day. Such a move would push the RSI back into overbought territory. Further up, the next resistance comes in at $3,464.
On the downside, the first support is at $3,331, which already broke in early trading. Look at least for a test on the S2 at $3,282, which coincides with the April 17 low. Below, the pivotal level from early April should catch the traders’ attention as well at $3,167.
XAU/USD: Daily Chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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