Gold prices extended their record-breaking streak for the third consecutive time this week, fueled by a weakened U.S. dollar amid escalating tensions between the U.S. and China. As of writing, the price of gold (XAU/USD) reached $3,342, marking a gain of over 3.5%.
The tension intensified after U.S. President Donald Trump ordered an investigation into the potential imposition of tariffs on rare earth imports, further inflaming the ongoing trade dispute with China. This development has heightened demand for safe-haven assets, such as gold, as investors seek protection from the growing geopolitical uncertainty.
Gold Hits Record Highs; Dollar Weakens
Gold prices surged to new heights on Monday and Wednesday, with the all-time high (ATH) reaching $3,343. Meanwhile, the U.S. Dollar Index (DXY), which tracks the performance of the greenback against a basket of six major currencies, dropped 0.83% to 99.17, reflecting investor apprehension about the trade conflict.
In parallel, Federal Reserve Chair Jerome Powell tempered expectations of an imminent rate cut. In remarks at the Economic Club of Chicago, Powell emphasized the central bank’s responsibility to prevent tariffs from triggering persistent inflationary pressures. “Our obligation is to keep long-term inflation expectations well anchored and to ensure that a one-time price increase does not evolve into a prolonged inflation problem,” Powell said.
U.S. Economic Data Mixed
U.S. economic data showed mixed signals. Retail sales exceeded expectations, rising 1.4% month-over-month in March, surpassing the forecasted 1.3%. This strong performance was driven by robust auto sales, though the control group, which excludes volatile items like autos, rose just 0.4%, falling short of the expected 0.6%.
On the other hand, industrial production data indicated a slowdown, falling 0.3% in March, following a 0.8% increase in February. This suggests that manufacturing activity continues to face headwinds.
As the week progresses, gold traders will be keeping an eye on upcoming housing data and Initial Jobless Claims for further indications of economic trends.
Market Reactions to Fed’s Stance and Falling Yields
The decline in U.S. Treasury yields provided additional support for gold. The U.S. 10-year Treasury yield dropped nearly six basis points to 4.281%, while real yields, as measured by the U.S. 10-year Treasury Inflation-Protected Securities, fell by 3.5 basis points to 2.111%. These lower yields help boost gold’s appeal, as the precious metal does not offer interest like government bonds.
Fed Chair Powell also weighed in on the broader economic challenges, warning that a weakening economy coupled with high inflation could create a stagflationary environment. “We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” Powell said, indicating the possibility of a conflict between controlling inflation and fostering economic growth.
Despite this, market participants are pricing in 91 basis points of rate cuts by the end of 2025, with the first cut expected as soon as July.
Gold Price Outlook: Testing New Highs
The technical outlook for gold remains bullish, with prices poised to test the $3,400 level. If gold breaks through the $3,350 mark, the next key resistance level could be $3,400, followed by psychological thresholds at $3,450 and $3,500.
However, should XAU/USD fall below the $3,300 mark, the next support levels to watch would be the April 16 low of $3,229, followed by the $3,200 figure.
As global economic uncertainties continue to drive demand for gold, the precious metal looks set to capitalize on the weakness of the U.S. dollar, potentially setting new records in the coming weeks.