Gold Price Forecast: XAU/USD record rally appears unabated on trade and Fed jitters
- Gold price sits at the highest level on record above $3,200 early Friday.
- Concerns about Fed’s independence and the impact of the US-Sino trade war weigh on the US Dollar.
- Gold price remains poised for more upside as the daily RSI prods the overbought region.
Gold price is trading close to the lifetime highs above $3,200 early Friday, resuming its record rally. The bright metal is on track to book a roughly 5.5% weekly gain.
Record highs and counting for Gold price
Mounting concerns over the financial stability and the economic situation in the United States (US) have accelerated the selling interest around the US Dollar (USD), pushing Gold price for another ride higher.
The US Federal Reserve’s (Fed) independence has always been under threat, and on April 9. US Supreme Court Chief Justice John Roberts reversed a court ruling, temporarily allowing US President Donald Trump’s Administration to fire members of independent agencies. Trump could take this opportunity to fire Fed Chair Jerome Powell, raising concerns over the financial stability in the world’s largest economy.
At the same time, US recession fears aggravate amid deepening US-China trade war, hinting at aggressive Fed interest rate cuts starting as early as May. President Trump hiked tariffs on Chinese goods to 145%, the White House confirmed on Thursday. China retaliated with 84% tariffs and strengthened ties with Europe and Asia to ease the pressure.
Exacerbating the pain in the Greenback, the US March Consumer Price Index (CPI) inflation came in tamer-than-expected, although it did not show the full impact of the trade war. The US CPI rose 0.1% in March, putting the 12-month inflation rate at 2.4%, down from 2.8% in February. Following the inflation report, traders continued pricing in three or four cuts by the end of the year.
Looking ahead, the US Producer Price Index (PPI) and preliminary University of Michigan (UoM) Inflation Expectations data will be published. However, the data could play second fiddle to tariff talks. A profit-taking recovery rally in the US Dollar cannot be ruled out due to the end-of-the-week repositioning, which could check the Gold price upside. China’s response to Trump’s 145% tariffs is eagerly awaited.
Gold price technical analysis: Daily chart
The daily chart shows that the 14-day Relative Strength Index (RSI) is prodding the overbought region at 70, suggesting more room for upside before the buyers’ exhaustion sets in.
The immediate resistance is seen at the $3,250 psychological level, above which a fresh uptrend toward the $3,300 threshold would be in the offing.
On the downside, the initial demand area is seen at $3,200, below which the 21-day Simple Moving Average (SMA) resistance-turned-support at $3,061 could come into play.
If the correction extends, the $3,000 mark will be the last line of defense for buyers.
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.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
