Gold prices (XAU/USD) are holding steady above the $2,900 mark during the first half of the European session on Tuesday, but struggles to capitalize on earlier intraday gains. Investors are increasingly cautious about potential global trade tensions, particularly in light of US President Donald Trump’s protectionist policies. In addition, expectations that the Federal Reserve (Fed) may cut interest rates further, fueled by a surprise decline in US retail sales and mixed inflation signals, continue to support demand for the non-yielding precious metal.
Gold Supported by Global Trade Tensions and Fed Rate Cut Bets
Concerns about escalating global trade tensions remain a key factor supporting gold prices. President Trump threatened on Friday that tariffs on automobiles could be implemented as early as April 2, adding to his plans for reciprocal tariffs on countries imposing duties on US imports. These developments have kept the safe-haven gold market buoyed.
The recent disappointing US retail sales report, combined with mixed inflation data, suggests the possibility of Fed rate cuts in the coming months. Fed Funds Futures currently price in a 40 basis point rate cut by 2025. Fed officials, however, have offered mixed views on the matter. Philadelphia Fed President Patrick Harker emphasized a steady policy approach, noting that the labor market is balanced and inflation remains sticky. Meanwhile, Fed Board of Governors member Michelle Bowman expressed concerns about the impact of high asset prices on inflation progress, suggesting that further certainty on declining inflation is needed before rate cuts can be considered.
Fed Board member Christopher Waller highlighted that inflation progress has been slow and that rate cuts may be appropriate in 2025 if inflation continues to follow the current pattern. The mixed signals from the Fed continue to support expectations for a cautious policy approach, which, in turn, benefits gold as a non-yielding asset.
US Dollar Rebounds, Limiting Gold’s Upside Potential
Meanwhile, the US Dollar has managed to snap a three-day losing streak, recovering from its lowest level since December 17. This rebound in the US Dollar has somewhat limited gold’s ability to sustain its rally. Traders are awaiting the release of the Empire State Manufacturing Index later today for further insights into the US economy, while speeches from influential Federal Open Market Committee (FOMC) members could provide additional direction for USD demand and create short-term trading opportunities.
Gold Price Technical Outlook
From a technical perspective, gold’s recent price action can be viewed as a bullish consolidation phase following its recent rally to a record high. Oscillators on the daily chart are firmly in positive territory, suggesting that gold’s path of least resistance remains to the upside. However, the daily Relative Strength Index (RSI) is nearing overbought conditions, indicating that any further upward movement may encounter resistance.
The immediate resistance level for gold lies around $2,925, followed by the all-time high range of $2,942-$2,943. A decisive break above these levels would signal a continuation of the uptrend that has persisted for the past two months.
On the downside, support for gold is expected near the $2,878-$2,876 region, with further downside potential towards $2,860-$2,855, which could present buying opportunities. A break below $2,834, however, could prompt technical selling, pushing gold prices towards $2,815 and potentially testing the $2,800 and $2,785-$2,784 support zones.
Conclusion
While gold prices are currently maintaining some gains, challenges persist in the form of a rebounding US Dollar and mixed signals from the Federal Reserve. The ongoing trade tensions and expectations for potential rate cuts continue to support gold’s appeal as a safe-haven asset. Traders will look to upcoming economic data and Fed speeches for further guidance, with gold’s technical outlook remaining bullish for now, albeit facing resistance at key price levels.