- Gold price remains close to all-time peak as rising trade tensions underpin safe-haven demand.
- Bets that the Fed will cut rates several times in 2025 lend additional support to the XAU/USD.
- The USD hangs near a multi-month low and further underpins the commodity ahead of the Fed.
Gold price (XAU/USD) attracts some dip-buyers on the first day of a new week and holds steady below the all-time top, levels beyond the $3,000 psychological mark touched on Friday. Persistent worries about escalating trade tensions and their impact on the global economy, along with geopolitical risks, continue to act as a tailwind for the safe-haven bullion. Apart from this, bets that the Federal Reserve (Fed) will cut interest rates several times this year further underpin the non-yielding yellow metal.
Meanwhile, the prospects for further policy easing by the US central bank keep the US Dollar (USD) depressed near a multi-month low touched last week, which, in turn, lends additional support to the Gold price. However, a positive turnaround in the global risk sentiment, bolstered by the optimism over China’s stimulus measures announced over the weekend, cap gains for the XAU/USD. Traders also seem reluctant and opt to wait for the outcome of a two-day FOMC policy meeting on Wednesday.
Daily Digest Market Movers: Gold price draws support from a combination of factors
- US Treasury Secretary Scott Bessent said late Sunday that he is not worried about recent market downturns because corrections are healthy and normal. Commenting on the chance of a recession, Bessent added that there are no guarantees. This, along with worries about the potential economic fallout from US President Donald Trump’s trade tariffs, continues to act as a tailwind for the safe-haven Gold price.
- On the geopolitical front, Houthi leader Abdul Malik al-Houthi, following deadly US airstrikes, said on Sunday that his militants would target US ships in the Red Sea as long as the US continues its attacks on Yemen. In response, the US defense secretary said on Sunday that the US will continue attacking Yemen’s Houthis until they stop attacks on shipping, raising the risk of a further escalation of conflict in the region.
- Meanwhile, an Israeli drone attack in northern Gaza killed at least nine people, including three journalists on Saturday. Israel’s military said that its forces have intervened to thwart threats by terrorists approaching its troops or planting bombs since the January 19 ceasefire took effect. The Israeli military added that six men killed in the strike were identified as members of the armed wings of Hamas.
- Market participants have been pricing in the possibility that the Federal Reserve will lower interest rates several times this year amid worries about an economic downturn on the back of the Trump administration’s aggressive trade policies. This comes on top of softer US inflation figures released last week and signs of a cooling labor market, supporting prospects for further policy easing by the US central bank.
- In fact, the Fed funds futures suggest that the Fed could lower borrowing costs by 25 basis points each at the June, July, and October monetary policy meetings. The expectations were further reaffirmed by the University of Michigan Surveys on Friday, which showed that the Consumer Sentiment Index plunged to a nearly 2-1/2-year low in March. This keeps the US Dollar bulls on the defensive near a multi-month low.
- China’s State Council announced a special action plan on Sunday aimed at stimulating domestic consumption and introduced measures to increase household incomes. Adding to this, China’s Shenzhen eased its housing provident fund loan policies to stimulate the property market and clear the overhang. This, in turn, boosts investors’ confidence and caps any meaningful gains for the safe-haven XAU/USD pair.
- Traders now look forward to Monday’s US economic docket – featuring the release of monthly Retail Sales and the Empire State Manufacturing Index – for some impetus later during the North American session. The focus, however, will remain glued to the crucial FOMC decision on Wednesday, which will influence the USD price dynamics and provide a fresh directional impetus to the non-yielding yellow metal.
Gold price bulls seem reluctant as daily RSI remains close to the overbought territory
From a technical perspective, last week’s breakout through the $2,928-2,930 horizontal resistance and a subsequent move was seen as a fresh trigger for bulls. That said, the daily Relative Strength Index (RSI) remains close to the overbought territory and is holding back traders from placing fresh bullish bets around the Gold price. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before the next leg up. Nevertheless, the broader setup suggests that the path of least resistance for the XAU/USD pair remains to the upside and supports prospects for an extension of a well-established uptrend witnessed over the past three months or so.
Meanwhile, any meaningful corrective slide might now attract fresh buyers near the $2,956 resistance breakpoint, below which the Gold price could drop to the $2,930-2,928 horizontal zone. The latter should act as a key pivotal point. A convincing break below might prompt some technical selling and pave the way for deeper losses. The XAU/USD pair might then accelerate the fall towards the $2,900 round figure en route to last week’s swing low, around the $2,880 region.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
