Gold prices (XAU/USD) have stabilized near $2,910 on Wednesday, following a sharp 1.3% decline the previous day. The drop came after weak US consumer confidence data and more realistic tariff threats from President Trump’s administration triggered market volatility. Despite the recent dip, gold remains supported by a significant drop in US yields, with markets now predicting a 25 basis points rate cut by the Federal Reserve (Fed) in June. This outlook is positive for gold, which has seen its price action bottom out for the time being.
Markets are now looking ahead to March 4, when tariffs on Mexico and Canada are set to be implemented. Before then, attention will turn to Friday’s release of the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index. With several key events on the horizon, traders may choose to remain cautious until more clarity emerges.
Market Drivers: Economic Data and Tariff Threats
Gold’s recent support has been driven by weak US economic data, which has fueled expectations for a Fed interest rate cut as soon as June. Additionally, President Trump’s escalating tariff threats have boosted demand for safe-haven assets like gold. According to Bloomberg, Claris Financial Advisors’ Lee Baker warned that gold’s elevated price levels could set up markets for a sharp correction, with investors continuing to buy despite the risks. Baker cautioned that such momentum often leads to a broad market washout.
The CME Fedwatch Tool, which monitors interest rate expectations, has seen the likelihood of a rate cut in June grow steadily. Currently, the tool projects a 66.2% chance of a rate reduction, compared to a 33.8% chance that rates will remain unchanged.
Technical Analysis: Gold Faces Potential Further Decline
For the second consecutive day, gold is trading below its daily Pivot Point. Although the price action appears to be consolidating, the risk remains that further downside could occur. The 4-hour Relative Strength Index (RSI) shows room for more downward movement, suggesting that a drop to $2,880 could be possible if the market continues its downturn.
On the upside, the first resistance level to watch is the daily Pivot Point at $2,918, which failed to hold as support during the early hours of trading on Wednesday. If gold manages to gain support, particularly if US yields continue to fall, the next resistance levels to watch are R1 at $2,948 and the all-time high of $2,956.
On the downside, revisiting Tuesday’s low at $2,890 is a likely scenario. The S1 support level at $2,882 could provide some stability, but if it is breached, the next significant support lies at $2,878, the February 17 low.
Conclusion
Gold has stabilized above $2,900 after a recent sell-off, supported by declining US yields and rising demand for safe-haven assets due to ongoing tariff threats. While short-term fluctuations are expected, the outlook for gold remains closely tied to the broader economic landscape, with key events like the upcoming PCE Price Index and Fed policy decisions likely to shape market sentiment in the weeks ahead. As traders await these developments, gold’s price action could see further consolidation or potential downside, depending on how the broader market responds.