Gold (XAU/USD) has maintained strong intraday gains during the first half of the European session, trading just above the $3,050 level, the top end of its weekly range. The precious metal’s rise comes as concerns about US President Donald Trump’s new tariffs heighten fears of a global trade war, which could trigger a worldwide recession. This economic uncertainty has boosted demand for gold as a safe-haven asset.
Rising Fears of Trade War and Fed Rate Cuts Drive Gold Demand
In addition to escalating trade tensions, growing expectations of multiple interest rate cuts by the Federal Reserve (Fed) this year are providing further support for gold. Investors are increasingly betting that the tariffs could slow down the US economy, prompting the Fed to resume its rate-cutting cycle. This has led to a weakening US Dollar (USD), further supporting gold prices as the non-yielding metal becomes more attractive.
The White House has confirmed that the US will impose a sweeping 104% tariff on Chinese imports starting this Wednesday, fueling concerns of a trade war and its potential to push the global economy into recession. This has led to a surge in demand for safe-haven assets like gold, as investors seek protection amid mounting uncertainty.
Moreover, traders have ramped up their expectations that the US economic slowdown caused by tariffs will prompt the Federal Reserve to cut interest rates soon. According to the CME Group’s FedWatch Tool, there is now over a 60% chance that the Fed will lower borrowing costs in May. The central bank is also expected to deliver five rate cuts in 2025, further weakening the US Dollar and boosting gold’s appeal.
US Dollar Weakens Amid Fed Concerns and Hawkish Comments
Despite hawkish comments from Federal Reserve officials, the US Dollar has fallen for the second consecutive day. San Francisco Fed President Mary Daly acknowledged that the policy is “in a very good place” but expressed concern over inflationary pressures from widespread tariffs. Meanwhile, Chicago Fed President Austan Goolsbee warned that the impact of US tariffs was greater than expected and posed significant risks to US importers, adding to the uncertainty in the market.
Investors are now awaiting the release of the minutes from the Fed’s last policy meeting, as well as key economic data, including the US Consumer Price Index (CPI) and the Producer Price Index (PPI) later this week. These reports are expected to provide insights into the Fed’s future policy actions and will likely influence both the US Dollar and gold prices.
Gold Price Technical Outlook: Bullish Momentum Continues
From a technical standpoint, gold’s recent decline from its record high has found support near the 61.8% Fibonacci retracement level of the February-April rally, around $2,957-$2,956. This level, coupled with the 50-day Simple Moving Average (SMA) around $2,952, marks key support. A break below this support zone could signal further bearish movement, with the next key support near $2,920, followed by the $2,900 mark.
On the upside, if gold manages to break past the recent swing high of $3,023, it could target resistance at $3,055-$3,056. A sustained rally could pave the way for gold to reclaim the $3,100 level, with additional resistance near $3,075-$3,080.
Conclusion
Gold’s recent price action highlights its role as a safe-haven asset in times of economic uncertainty. Rising fears of a trade war and expectations of rate cuts from the Federal Reserve continue to support gold’s bullish momentum. As investors closely monitor economic data and the Fed’s policy decisions, gold remains well-positioned to benefit from ongoing market volatility.