Gold prices on a path for new all-time highs

Gold prices surged from $3,114 to $3,145 per ounce, approaching Tuesday’s all-time high of $3,149 per ounce. If gold prices rise, they may encounter resistance at the psychological level of $3,150 per ounce, while if gold prices decline, support may be encountered near $3,000 per ounce. 

Gold prices hit a new all-time high of $3,149 per ounce on Tuesday but retreated in early trading on Wednesday as markets awaited the announcement of US trade tariffs. Gold prices surged later on Thursday, after the announcement of the tariffs gave rise to a risk aversion sentiment, boosting safe-haven assets. Gold prices are trading in overbought territory but remain bullish, driven by geopolitical uncertainty and trade wars concerns and are likely to touch new historical highs in the following days.

On Wednesday, Trump announced a 10% tariff on all imports into the US, as well as an additional 25% tariff on all imported automobiles. Concerns that Trump’s trade policies may ignite global trading wars are raising the appeal of safe-haven assets, such as gold. Trump’s tariffs are likely to raise global inflation and lower the economic outlook, thus promoting a risk-averse sentiment. Trump’s economic policies are raising concerns that the US economic growth may slow down. Many analysts are already expressing concerns that the US will enter a recession.

Trump, however, also announced 34% duties on imports from China. This is likely to have a heavy impact on China’s economy. China is one of the leading buyers of gold, and the US taxes may affect its buying power, putting a lid on ascent. 

Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar dipped on Wednesday, and the dollar index dropped from 104.2 to 103.7. U.S. Treasury yields declined, with the US 10-year bond yield dropping from 4.18% to 4.12%.

Gold prices are supported by rising Fed rate cut expectations. The US Federal Reserve kept interest rates unchanged at its policy meeting in March. FOMC policymakers voted unanimously to maintain the federal funds rate in a target range of 4.25% to 4.50%. 

The Fed, however, updated its “dot plot”, which is a summary of the central bank’s economic projections and reflects the central bank’s rate outlook. The latest FOMC dot plot indicates that policymakers expect to deliver approximately two more rate cuts this year of 25 basis points each, raising market expectations of future rate cuts. Markets are pricing in two more rate cuts this year, with the first rate cut in June, while a third rate cut is also considered possible. 

Fed Chair Jerome Powell delivered a hawkish message after the policy meeting, stating that the central bank is not in a hurry to lower interest rates. Powell cited economic instability and elevated inflation risks due to trade tariffs as the reasons behind the Fed’s decision to keep interest rates steady.

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Written by:
Myrsini Giannouli

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