Gold prices retreated from their recent all-time high of $3,500, reached earlier this Tuesday, as traders took a pause after the commodity’s sharp rally. Despite the pullback, the precious metal retains a positive outlook, with ongoing concerns over U.S. President Donald Trump’s tariffs and geopolitical tensions likely to support gold’s safe-haven appeal.
The retreat comes amid short-term overbought conditions on technical charts, but gold’s bullish bias persists through the first half of the European trading session. Trump’s trade policies continue to create uncertainty about the potential economic impact of tariffs, fueling fears of a slowdown. This, combined with geopolitical instability, has reinforced the demand for gold as a hedge against risk.
Trump’s inconsistent approach to tariffs, coupled with his criticism of Federal Reserve Chairman Jerome Powell, has shaken investor confidence in the U.S. economy. The president’s comments about firing Powell and calls for more aggressive interest rate cuts have raised questions about the Fed‘s independence. As a result, the U.S. Dollar (USD) remains under pressure, benefiting gold, which offers an alternative investment in times of uncertainty.
Market expectations for further rate cuts from the Fed are growing. The CME Group’s FedWatch Tool indicates traders are anticipating a 25-basis-point rate cut in June, with at least three additional reductions in 2025. These expectations support the bullish sentiment surrounding gold, as lower interest rates make the non-yielding asset more attractive.
Tariff Fears and Fed Policy Uncertainty Drive Gold’s Rally
The ongoing trade tensions and Trump’s shifting stance on tariffs continue to bolster gold’s status as a safe-haven asset. On Tuesday, gold prices reached new record highs, driven by fears that Trump’s trade policies could lead to a global economic slowdown. Investors remain cautious as they await further developments, particularly regarding the fate of Federal Reserve Chair Jerome Powell. Trump’s recent remarks accusing Powell of being slow to reduce interest rates and his contemplation of removing him from office have intensified concerns about the central bank’s monetary policy independence.
This political uncertainty, combined with speculation that the Fed will resume its rate-cutting cycle, has weighed on the U.S. Dollar. Meanwhile, geopolitical tensions add to the turmoil. In eastern and southern Ukraine, Russian forces launched 96 drones and three missiles, intensifying the ongoing conflict and further unsettling global markets.
Traders are now awaiting the Richmond Manufacturing Index from the U.S., along with speeches from influential Federal Open Market Committee (FOMC) members, which could influence USD demand. However, the main focus will remain on the flash Purchasing Managers’ Index (PMI) data set to be released Wednesday, which is expected to provide crucial insight into the health of the global economy and could offer further direction for gold prices.
Technical Outlook for Gold
From a technical standpoint, the daily Relative Strength Index (RSI) for gold remains well above 70, signaling overbought conditions. This suggests that caution is warranted, and traders may want to wait for consolidation or a slight pullback before entering new bullish positions.
In the event of a correction, gold is likely to find support near the $3,425-$3,423 range, just above the $3,400 mark. A decisive break below this level could trigger further selling, potentially sending prices toward the $3,358-$3,357 region. If this support is broken, the next key level to watch would be $3,344, with a breakdown below that likely indicating a deeper pullback in prices.
In conclusion, while gold has taken a breather after hitting record highs, its underlying bullish momentum remains intact, supported by ongoing trade and geopolitical tensions, as well as expectations of further rate cuts from the U.S. Federal Reserve. However, caution is advised in the short term as the market faces overbought conditions.
Related topics:
- India Surpasses China in Gold Purchases, Buying 51% More in Three Months
- Qilu Bank Enhances Support for Small Businesses with Innovative Financial Tools
- Bitcoin Poised for a Surge Amid Gold’s Delivery Delays, Expert Claims
