Gold prices (XAU/USD) retreated slightly after hitting a fresh all-time high earlier this week, trading with a mild negative bias around the $3,220 mark during the first half of the European session. The rise in equity markets prompted some profit-taking in the precious metal, amid slightly overbought conditions on the daily chart. However, a significant decline in gold prices remains unlikely due to the ongoing escalation in US-China trade tensions, which continue to support demand for the safe-haven asset.
US-China Trade Tensions and Fed Rate Cuts Limit Gold’s Downside
Investor sentiment remains optimistic that the Federal Reserve will resume its rate-cutting cycle soon, with at least three cuts expected this year. This is driven by concerns about a US economic slowdown fueled by tariffs. As a result, the US Dollar (USD) remains near its lowest level since April 2022, which helps limit the downside for gold. Any pullback in the price of gold is likely to be seen as a buying opportunity.
Trade War Escalation Fuels Safe-Haven Demand
On Friday, China retaliated by increasing tariffs on US imports to 125% in response to US President Donald Trump’s decision to raise duties on Chinese goods to 145%. This escalation adds to concerns that the ongoing trade war between the US and China will weaken global economic growth, further supporting gold’s safe-haven appeal and pushing its price to new highs.
At the same time, a sharp rise in US Treasury yields signals a growing lack of confidence in the US economy, as investors begin to offload US government bonds. The outlook for further policy easing by the Federal Reserve, along with weaker-than-expected US inflation data, continues to pressure the US Dollar and benefit gold.
US Inflation Data and Fed Rate Cuts Drive Gold Demand
The US Bureau of Labor Statistics reported last Thursday that the Consumer Price Index (CPI) fell by 0.1% in March, while the annual rate slowed to 2.4% from 2.8% in February. Additionally, core CPI, which excludes food and energy, rose only 0.1% month-on-month, marking its lowest rate in nearly four years. As a result, traders are now pricing in 90 basis points of Fed rate cuts by the end of 2025, which may further drive demand for non-yielding assets like gold.
Expectations that tariffs will push inflation higher in the coming months also contribute to gold’s appeal as a hedge against rising prices, supporting the prospects for continued short-term appreciation.
Focus on Fed and Retail Sales Data This Week
Market participants will be closely watching comments from key Federal Open Market Committee (FOMC) members, including Fed Chair Jerome Powell on Wednesday, for insights into the Fed’s future rate-cut path. Additionally, US monthly retail sales figures, due on Wednesday, could provide further direction for the USD and impact gold prices in the latter half of the week.
Gold’s Technical Outlook: Bullish Bias Remains
From a technical standpoint, the daily Relative Strength Index (RSI) is slightly above the 70 mark, indicating slightly overbought conditions. It may be wise to wait for some consolidation or a modest pullback before positioning for further upward movement. A corrective slide towards the $3,200 mark could present a buying opportunity, with the $3,168-$3,167 region acting as a key support level and pivotal point for short-term traders.