Gold price snaps rally and cracks under selling pressure after Trump's softening stance

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.

Filip Lagaart FXStreet

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

What does the Federal Reserve do, how does it impact the US Dollar?

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.

How often does the Fed hold monetary policy meetings?

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.

What is Quantitative Easing (QE) and how does it impact USD?

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.

What is Quantitative Tightening (QT) and how does it impact 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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Author

Filip Lagaart

FXStreet

Filip Lagaart is a former sales/trader with over 15 years of financial markets expertise under its belt.

GBP/USD revisits 1.3530; Dollar pushes harder

GBP/USD adds to the weekly correction and recedes toward the 1.3530 zone on Friday. Indeed, Cable faces increasing selling pressure on the back of extra gains in the Greenback, particularly fuelled by Chair Warsh’s speech at the Jackson Hole Symposium and the US NFP Annual Revision (-79K).

EUR/USD breaches below 1.1600, multi-day lows

EUR/USD now accelerates its decline and retreats to seven-day troughs in the sub-1.1600 region at the end of the week. The pair’s pullback comes on the back of the strong rebound in the US Dollar after Chair Warsh delivered a hawkish message in Jackson Hole, while the US NFP Annual Revision came in at -79K.

Gold challenges its 200-day SMA near $4,530

Gold’s decline gathers fresh steam, hitting weekly lows while disputing its critical 200-day SMA near $4,530 per troy ounce. The yellow metal’s increasing weakness comes in response to the generalised upbeat tone in the US Dollar and the widespread rebound in US Treasury yields, as investors continue to reprice a Fed rate hike in September.

Week ahead: RBNZ and BoC decide on rates ahead of all-important US NFP

The US dollar staged a modest recovery this week, perhaps as traders decided to cover some of their short positions amid slightly stickier or in-line US PCE inflation numbers for July, confounding expectations of softer prints amid the softness revealed in the CPI data for the month.

CFTC Report: CAD short covering leads; Gold buying surges

The week in one sentence: speculative positioning shifted more constructively in the week to August 25. CAD short covering led the move, followed by a broad reduction in EUR shorts and renewed Gold buying. GBP and VIX positioning also improved, while JPY positioning deteriorated and WTI flows diverged from weaker prices.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.