- Gold price attracts some sellers on Monday amid a modest USD bounce from a multi-month low.
- Worries about Trump‘s trade policies and Fed rate cut bets should lend support to the commodity.
- The recent range-bound price action also warrants caution before placing aggressive bearish bets.
Gold price (XAU/USD) edges lower during the first half of the European session on Monday, though it lacks follow-through selling and remains confined in a familiar range held over the past week or so. The US Dollar (USD) attracts some buying on the first day of a new week and moves away from its lowest level since November touched in reaction to weaker US jobs data. This, in turn, is seen as a key factor exerting some downward pressure on the precious metal.
That said, the growing acceptance that the Federal Reserve (Fed) will cut interest rates multiple times this year triggers a fresh leg down in the US Treasury bond yields, which might hold back the USD bulls from placing aggressive bets. Apart from this, worries about the potential economic fallout from US President Donald Trump’s trade tariffs could offer some support to the safe-haven Gold price. This, in turn, warrants caution before positioning for deeper losses.
Daily Digest Market Movers: Gold price is pressured by modest USD bounce; downside seems limited
- The uncertainty surrounding US President Donald Trump’s trade policies keeps investors on the edge and continues to act as a tailwind for the Gold price at the start of a new week. Moreover, investors remain worried that Trump’s protectionist tariffs could slow the US economic growth and force the Federal Reserve to resume its rate-cutting cycle in June.
- In fact, Trump took another pivot on his tariff agenda and said that impending tariffs on Canada may or may not come on Monday, or on Tuesday. This comes a day after the Trump administration temporarily waived off the 25% steep tariffs on goods from Canada and Mexico that comply with the US–Mexico–Canada Agreement for a month.
- Fed Chair Jerome Powell said on Friday that the uncertainty around Trump Administration policies and their economic effects remains high. Separately, San Francisco Fed President Mary Daly said late Sunday that rising uncertainty among businesses could dampen demand in the US economy but does not justify a change in the interest rates policy.
- Adding to this, the US monthly employment details released on Friday showed that the US labor market in the world’s largest economy slowed last month and reaffirmed bets for further policy easing by the Fed. The headline Nonfarm Payrolls print came in to show that the economy added 151K jobs in February against the 160K consensus forecast.
- Moreover, the previous month’s reading was revised down to 125K from 143K reported originally. Additional details of the report showed that the Unemployment Rate unexpectedly edged higher to 4.1% from 4.0% in January. This, to a larger extent, overshadowed a rise in the Average Hourly Earnings to 4% from 3.9% in January (revised from 4.1%).
- Traders are now pricing in about three rate cuts of 25 basis points each by the Fed by the end of this year. This, in turn, triggers a fresh leg down in the US Treasury bond yields, which keeps the USD bulls on the defensive. Despite the supporting factors, the non-yielding precious metal has been struggling to attract meaningful buyers, warranting caution for bulls.
Gold price might continue to show some resilience below the $2,900 pivotal support
From a technical perspective, the Gold price has been showing some resilience below the $2,900 mark. Moreover, oscillators on the daily chart – though they have been losing traction – are still holding in positive territory. That said, the recent repeated failures to make it through the $2,925-2,930 supply zone make it prudent to wait for strong follow-through buying before placing fresh bullish bets. The XAU/USD might then aim to challenge the all-time peak, around the $2,956 region touched on February 24.
On the flip side, acceptance below the $2,900-2,895 horizontal zone might prompt some technical selling and drag the Gold price to the $2,860-2,858 horizontal zone. The downward trajectory could extend further towards the February 28 swing low, around the $2,833-2,832 area, before the XAU/USD eventually drops to the $2,800 round-figure mark.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
