Gold Price Forecast: XAU/USD trades with mild gains near $3,350 on tariff uncertainty
- Gold price posts modest gains around $3,350 in Monday’s early Asian session.
- Economic uncertainty and lower interest rates boost safe-haven flows, supporting the Gold price.
- The upbear UoM survey might help limit the Gold’s losses.
The Gold price ( XAU/USD) trades with mild gains near $3,350 during the early Asian session on Monday. Uncertainty around trade talks is likely to support Gold's safe-haven demand as a tariff deadline with the US looms. Traders will take more cues from the speech from Federal Reserve (Fed) Chair Jerome Powell later on Tuesday.
US Commerce Secretary Howard Lutnick said on Sunday that August 1 is the deadline for countries to begin paying tariffs to the US. President Donald Trump’s tariff deadline has shifted since he announced his steep levies on trading partners on April 2, but White House officials now maintain that August 1 is a firm deadline. The uncertainty and concerns over the new tariff rates could boost the yellow metal, as it’s seen as the ultimate safe-haven asset during uncertain times.
Additionally, the dovish remarks from the Fed officials might lift a non-yielding asset. Fed Governor Christopher Waller said on Thursday he continues to believe the US central bank should cut interest rates at the July meeting amid mounting risks to the economy. Analysts expect the Fed will maintain its current rates at the end of this month, with a chance standing at 94% for a hold and 6% for a 25 basis points (bps) rate cut.
On the other hand, the renewed US Dollar (USD) demand might weigh on the USD-denominated Gold price in the near term. The University of Michigan's (UoM) preliminary Consumer Sentiment Index rose to 61.8 in July from 60.7 in June. This reading came in stronger than the market expectation of 61.5.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
