Fueled by a softening dollar and renewed trade friction between the US and China, gold prices saw an uptick Wednesday, as investors sought the security of the precious metal.
A weaker dollar makes commodities priced in the greenback cheaper for overseas buyers, thereby lifting demand.
The gold price has continued its period of consolidation near the $3,350 level during the initial part of Wednesday’s European trading hours. This price action keeps gold close to the almost four-week peak it reached the day before.
Haresh Menghani, editor at FXStreet, said in a note:
Traders now seem reluctant and opt to wait for potential talks between US President Donald Trump and Chinese President Xi Jinping before placing fresh directional bets.
At the time of writing, the most-active COMEX gold contract was at $3,384.92 per barrel, up 0.2% from the previous close.
The silver contract on COMEX was at $34.653 per ounce, up 0.1%.
Trade tensions
In a Wednesday statement, US President Donald Trump described his Chinese counterpart Xi Jinping, as a formidable negotiator, noting his extreme difficulty in striking deals.
This came shortly after the US President criticised China for allegedly breaching an accord regarding the removal of tariffs and trade barriers.
Effective Wednesday, the US doubled tariffs on the majority of imported steel and aluminum.
This move by the Trump administration escalates a worldwide trade conflict. Simultaneously, the President anticipates trade allies to present their most favorable propositions.
These proposals aim to avert the imposition of severe import tax rates on additional goods, scheduled for implementation at the commencement of July.
“This keeps the trade-related risk premium in play and offers some support to the safe-haven gold price,” Menghani said.
“Gold was also an obvious target for those seeking some safety as investor risk appetite evaporated,” said David Morrison, senior market analyst at Trade Nation.
Economic data awaited
The focus now shifts to the upcoming publication of the US ADP private-sector employment report and the US ISM Services PMI, which traders are eagerly awaiting.
The USD’s strength will be significantly influenced by remarks from key Federal Open Market Committee officials, which, in turn, will substantially impact the gold and dollar exchange rate.
“The focus, however, remains glued to the official monthly jobs data, popularly known as the Nonfarm Payrolls (NFP) report,” Menghani added.
Raphael Bostic, President of the Atlanta Fed, expressed a strong reservation against quickly reducing interest rates. He emphasized the necessity of a “patience” strategy in the current monetary policy, noting his “very cautious” stance on the matter.
While core prices remain a concern and inflation work is ongoing, recession is not currently predicted. However, depending on economic conditions, one interest rate cut is possible within the year, Bostic said.
Chicago Fed’s Austan Goolsbee pointed out that data might not immediately reflect a tariff-related slowdown, which could take time to surface.
Gold’s technical setup favours bulls
Technically, Wednesday’s dip-buying in gold followed a recent breakout above the $3,324-3,326 resistance level.
Moreover, oscillators on daily/hourly charts are holding comfortably in positive territory and suggest that the path of least resistance for the Gold price is to the upside, according to FXStreet.
Nevertheless, a climb beyond the current level might encounter some obstacles around the $3,380 mark. This resistance would occur before reaching the vicinity of $3,400, which represents a multi-week peak attained on Tuesday.
Gold’s sustained momentum past a key resistance level would likely propel the XAU/USD pair to revisit its April record high and aim for a new milestone at the significant $3,500 mark, Menghani said.
Recent moves suggest there’s still plenty of life in precious metals.
Morrison noted:
But for those tempted to open fresh positions, it may be worth waiting to see how gold and silver settle following Monday’s fireworks.
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