Gold prices edged down slightly after momentarily breaking a historic barrier, climbing above $3,000 per ounce before settling back at $2,982 as foreign exchange fluctuations took their toll on the US Dollar.
Rising geopolitical tensions have played a significant role in bolstering gold demand, driven by the unraveling ceasefire between Russia and Ukraine. At the same time, China’s central bank has extended its gold purchasing spree, further enhancing the precious metal’s appeal.
Concerns over a potential US recession intensified after a dismal consumer sentiment report, heightening speculation that the Federal Reserve might pivot towards more accommodative policies in 2025.
Gold initially soared past the $3,000 mark as traders grappled with uncertainties surrounding US trade policies under President Donald Trump. Coupled with a weaker US Dollar, these factors propelled gold to a new peak of $3,004 per ounce, though it later dipped to $2,982, losing 0.21% on the day.
Global political developments are also influencing the demand for gold. The shaky ceasefire between Ukraine and Russia now seems more uncertain, with Russia appearing hesitant to fully adhere to the agreed 30-day truce.
Meanwhile, the People’s Bank of China has been on a gold buying streak, growing its reserves for the fourth consecutive month as noted by the World Gold Council.
The possibility of an economic downturn in the US has weakened the Dollar, causing increased interest in this non-yielding asset. This scenario has led traders to anticipate a potential 66 basis point policy easing by the Federal Reserve in 2025, a slight reduction from 74 basis points projected just a day earlier.
Market participants are keenly awaiting the Federal Reserve’s upcoming policy decision. Fed Chair Jerome Powell recently indicated that inflation expectations, influenced by trade tariffs, have been climbing, highlighting concerns about potential price pressures.
In data releases, the University of Michigan’s Consumer Sentiment Index reflected a disheartening performance, while inflation expectations rose due to tariffs imposed by President Trump.
Looking ahead to next week, key economic indicators include Retail Sales, housing reports, the Federal Reserve’s monetary policy decisions, and economic forecasts.
US 10-year Treasury bond yields have tracked upwards, increasing by five basis points to 4.320%. Meanwhile, US real yields, as captured by Treasury Inflation-Protected Securities, have risen by four and a half basis points to 2.013%. The US Dollar Index, which measures the Dollar against a basket of currencies, has dipped slightly by 0.14% to 103.71. The University of Michigan’s sentiment survey for March showed a sharp decline in consumer confidence, dropping to 57.9 from a previous 64.7, which was notably below expected values.
Inflation expectations have also ticked up, with Americans forecasting a 12-month inflation rate increase from 4.3% to 4.9%. Over a five-year period, inflation is expected to hit 3.9%, up from prior expectations of 3.5%. Despite some cooling inflation data recently, economists warn that import tariffs might trigger another wave of inflation in the coming months.
US President Donald Trump’s administration implemented a 25% tariff on steel and aluminum, aiming to reduce the trade imbalance.
Gold prices are encountering difficulty maintaining levels above $3,000. After surpassing this milestone, the price has retreated as bullish traders pause to collect gains before attempting another push beyond the all-time high of $3,004. Future resistance levels are poised at $3,050 and $3,100.
Conversely, initial support lies at $2,950, and failure to hold this could lead to further tests at $2,900 and $2,850, with subsequent support at the February low of $2,832.
Gold has historically been a cornerstone for human civilization as a reliable store of value and medium of exchange. Beyond its aesthetic and jewelry uses, it is often viewed as a safe haven asset and a hedge against inflation and currency depreciation, as its value isn’t tied to any specific issuer or government.
Emerging economies such as China, India, and Turkey have been rapidly increasing their gold reserves, as evidenced by central banks adding 1,136 tonnes of gold in 2022, the largest annual purchase on record according to the World Gold Council.
Gold’s value often inversely correlates with the US Dollar and US Treasuries. A weaker Dollar usually boosts gold prices, making it a preferred choice during volatile market periods. However, when stock markets rally, gold might weaken, as investors tend to gravitate towards riskier assets. Political instability or economic downturn fears can quickly drive gold prices up, reaffirming its safe haven status amidst rapidly changing economic landscapes.
