Gold prices (XAU/USD) extended their retracement on Friday, dropping to fresh daily lows around $2,920, after briefly touching record highs the previous day. The retreat is attributed to a modest pickup in US Dollar (USD) demand, reversing part of the prior day’s slump. This shift, along with the Federal Reserve’s hawkish stance, has prompted some profit-taking in gold, which had seen slightly overstretched conditions on the daily chart.
However, concerns over US President Donald Trump’s tariff plans, which could potentially trigger a global trade war, continue to support gold’s safe-haven status. Additionally, fears that Trump’s protectionist policies could reignite inflation may further boost demand for gold as a hedge against rising prices. As a result, it may be prudent for traders to await stronger selling momentum before positioning for a major corrective slide in XAU/USD, which is still on track to register an eighth consecutive week of gains.
USD Gains and Tariff Fears Drive Market Dynamics
Gold prices surged to new heights near $2,955 on Thursday, fueled by uncertainties surrounding Trump’s tariff threats and their potential global economic impact. Since taking office, Trump has imposed tariffs on steel and aluminum and plans to introduce additional tariffs on Chinese imports in the coming month.
Market sentiment soured following a softer-than-expected sales forecast from Walmart, which raised concerns about economic strength and the impact of Trump’s policies on inflation and consumer spending. Meanwhile, hopes for a peace deal between Russia and Ukraine seem to have faded as tensions escalated, further supporting the demand for gold as a safe-haven asset.
The US Dollar, though still close to its lowest level since December 10, is seeing some recovery due to expectations of further rate cuts by the Federal Reserve. This could help support the gold price, despite some profit-taking amid slightly overbought conditions.
Federal Reserve’s Mixed Stance Adds Uncertainty
Fed officials remain divided on the outlook for interest rates. While St. Louis Fed President Alberto Musalem cautioned about the risk of stagflation and rising inflation expectations, Atlanta Fed President Raphael Bostic struck a more dovish tone, suggesting two rate cuts this year. These mixed signals from the Fed are adding to the uncertainty surrounding gold’s short-term prospects.
Market participants are awaiting the flash PMI data, which will offer further insight into global economic health. Additionally, the release of Existing Home Sales data and the revised Michigan Consumer Sentiment Index could create short-term opportunities for traders.
Technical Outlook: Key Levels to Watch
The daily Relative Strength Index (RSI) is approaching 70, signaling caution for bullish traders. While the recent breakout above the $2,928-$2,930 barrier indicates an overall upward trend, any further decline toward the $2,900 level may present a buying opportunity. Key support levels include $2,880, with a potential move down to the $2,860-2,855 range and the $2,800 level if broken.
Bullish traders may look for consolidation near the $2,950-$2,955 region before committing to fresh positions. Despite the short-term pullback, the longer-term uptrend remains intact, supporting prospects for further gains in gold prices.
Conclusion
Gold prices are facing a short-term pullback amid USD strength and profit-taking, but concerns over tariffs and inflation continue to support gold as a safe-haven asset. Traders should watch key technical levels, particularly around $2,900, for potential buying opportunities. With the Fed’s mixed stance and geopolitical uncertainties, gold’s long-term uptrend remains promising, but further consolidation may be needed before a fresh rally.