Gold attempts a recovery as Trump announces 25% tariffs on Japan
- Gold price decline remains limited with trade tensions limiting losses.
- Trump sends a letter to Japan informing them of a 25% tariff on all exports to the US, effective August 1.
- XAU/USD rises above the 50-day Simple Moving Average at $3,321, after falling below $3,300 in the European session.
Gold (XAU/USD) is currently attempting a recovery in the American session as markets await more news of trade deals ahead of Wednesday’s tariff deadline, with prices nearing $3,330 at the time of writing.
Bloomberg has reported that US President Donald Trump has sent a letter to Japan informing them of a 25% tariff rate on all Japanese imports to the US, effective August 1.
US yields have also firmed after Thursday’s Nonfarm Payrolls (NFP) report revealed a resilient labour market. This reduced the prospects that the Federal Reserve (Fed) would lower interest rates in July. The positive economic data has eased fears of a slowing economy, lifting the US Dollar.
Expectations that interest rates will remain at higher levels for longer do not bode well for non-yielding assets such as bullion.
Daily digest market movers: Gold awaits details on trade deals, FOMC Minutes
- Reporters spoke to US President Donald Trump at the Morristown Airport on Sunday about the trade negotiations. "I think we will have most countries done by July 9, either a letter or a deal,” he said.
- Letters outlining the tariffs that will be charged to 12-15 countries are expected to be sent by noon on Monday. The remaining notifications are to be dispatched before Wednesday. Reciprocal tariffs are set to take effect starting August 1.
- Trump has written a post on Truth Social stating that “Any country aligning themselves with the Anti‑American policies of BRICS, will be charged an ADDITIONAL 10 % tariff. There will be no exceptions to this policy.”
- The BRICS summit in Rio de Janeiro is currently underway, and the emerging market nations that established the bloc are beginning to reduce their reliance on the United States. This initiative includes moving away from using the US Dollar as a receiving currency, a concept known as de-dollarization.
- BRICS is an acronym that stands for an association of five major emerging economies: Brazil, Russia, India, China, and South Africa. This group was formed to enhance economic cooperation and promote development in these countries. BRICS nations collaborate on various issues, including trade, investment, finance, and sustainable development. They aim to increase their influence in global economic and political affairs. The bloc also holds annual summits to discuss and coordinate strategies for mutual support and growth.
- The World Gold Survey in June showed that demand for bullion has been on the rise, especially with tensions between the US and China escalating in recent years.
- The Federal Open Market Committee will release the Minutes from its June Meeting on Wednesday. This report outlines the reasons for maintaining interest rates at the current range of 4.25% to 4.50% in June. It also provides insight into the perspective of the Board of Governors members regarding the prospects of the US economy. This influences expectations of when the Fed may cut interest rates.
Gold technical analysis: XAU/USD tests moving average resistance near $3,320
The current daily chart of Gold shows price action consolidating within a symmetrical triangle, suggesting that a breakout is likely as the range narrows. This tightening formation reflects growing pressure, which often precedes a significant directional move.
XAU/USD is currently threatening a retest of the 50-day Simple Moving Average (SMA) at $3,321 but remains below the 20-day SMA, which is near $3,350.
Psychological support remains at $3,300 with the 38.2% Fibonacci retracement level of the April rally at $3,292, highlighting the significance of this critical support zone, which could help determine the near-term direction.
Downside targets below this range include the 50% and 61.8% Fibonacci retracement levels at $3,228 and $3,164, respectively.
Spot Gold (XAU/USD) daily chart
However, if the price manages to hold above $3,300 and rebound, a bullish reversal could occur. In that case, the first upside targets would be the 20-day SMA at $3,350. A confirmed breakout above the triangle resistance and the 23.6% Fibonacci level at $3,371 would open the door for further gains, with a potential move toward psychological resistance at $3,400.
The Relative Strength Index (RSI) is currently near 49, rising toward the neutral zone at 50.
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
Tammy Da Costa, CFTe®
FXStreet
Tammy is an economist and market analyst with a deep passion for financial markets, particularly commodities and geopolitics.
