Gold price sees retreat on the back of US-UK trade deal breakthrough
- Gold price sees prices fade by 1% halfway through European trading on Thursday.
- The UK and the US to announce a trade deal that would exempt the UK from US tariffs.
- Gold outflow triggered with the assumption that more deals will follow suit in safe haven unwind.
Gold (XAU/USD) slips to $3,340 at the time of writing on Thursday, a smaller-than 1% correction in safe haven outflow, with United States (US) President Donald Trump expected to announce a trade deal agreement with the United Kingdom (UK) at a news conference at 14:00 GMT in Washington, according to people familiar with the matter. Meanwhile, the UK administration has confirmed to Bloomberg and the Financial Times that a deal will be announced. Details on that trade deal remain unconfirmed.
Additional driver overnight was the Federal Reserve (Fed) interest rate decision and Fed Chairman Jerome Powell’s remarks. The main takeaway from Powell’s words was that the US economy is showing signs of resilience for now. However, Powell expects the actual impact of tariffs and heightened uncertainty to impact economic numbers later this year. The central bank kept interest rates unchanged in the range of 4.25%-4.50%, confirming the markets’ assumption, as seen in the Fedwatch Tool, that a rate cut is not foreseen until summer.
Daily digest market movers: Comprehensive deal announced
- Halfway through the European trading session, President Trump tweeted on his Truth Social Network that the UK trade deal is "full and comprehensive". More details to be released at the press conference.
- In the Asian trading session, before the trade deal announcement was issued, the Gold price was climbing, after tumbling on Wednesday when the Federal Reserve held interest rates, and Chair Jerome Powell said the central bank isn’t in a rush to cut despite trade-war uncertainty, Bloomberg reports.
- That the Gold Rush is not over, even with a possible initial trade deal, can be seen with statements from several hedge funds. This Thursday, Waratah Capital Advisors Ltd. reported it is betting on Gold to lift its returns this year as investors pile into the asset to shelter their wealth during the global trade war, Bloomberg reports.
- “Big News Conference tomorrow morning at 10:00 EDT (14:00 GMT), The Oval Office, concerning a MAJOR TRADE DEAL WITH REPRESENTATIVES OF A BIG, AND HIGHLY RESPECTED, COUNTRY. THE FIRST OF MANY!!!” President Trump wrote on his social media platform “Truth Social”, The New York Times reports.
Gold Price Technical Analysis: Not buying it!
Do not pop the champagne just yet with this initial trade deal between the UK and the US. Euphoria is taking place in markets on the back of these headlines, though the first element to trim the ambiance is that the UK is indeed a big economy, though with the near least exposure to the US in terms of trade. That a deal is being struck this quickly means it will probably only be on one segment, or a deal in principle.
Gold price initially traded higher this Thursday, facing rejection at the R1 resistance near $3,413. Should the signing of the deal be delayed, or if the actual deal is really just some window dressing, expect a knee-jerk reaction with Gold quickly sprinting back to that level. Once there, it is not far from the R2 resistance at $3,462.
On the downside, the S1 support at $3,338 is being tested at the time of writing. Further down, the S2 support comes in at $3,311, though technically not holding any other relevance besides being a daily pivotal level. The watchdog level, which is near $3,245, is a much stronger floor from a technical standpoint.
XAU/USD: Daily Chart
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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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.
