Gold under pressure from stronger US dollar

Gold prices hit a new all-time high of $3,168 per ounce last week, but have been declining since, dropping below $2,980 per ounce on Monday. If gold prices rise, they may encounter resistance at $3,168 per ounce, while if gold prices decline, support may be encountered near $2,940 per ounce. 

Gold prices hit a new all-time high of $3,168 per ounce last week, buoyed by the dollar’s decline, but plummeted on Monday as the dollar rallied. Gold prices have typically been directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. 

The dollar was volatile on Monday as the uncertainty around US trade tariffs caused market turmoil. The dollar index dipped to 102.3 early in the day, then rallied, rising to 103.3. U.S. Treasury yields also strengthened, with the US 10-year bond yield rising from 4.00% to 4.13%.

Last week, 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, and many analysts are already expressing concerns that the US will enter a recession.

Trump, however, has 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 gold’s ascent. China retaliated with 34% tariffs on US imports, causing the crisis to escalate. Trump further exacerbated matters on Monday by threatening China with additional 50% tariffs, starting on April 9.  

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 to a target range of 4.25% to 4.50%. 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 warned on Friday that Trump’s tariffs pose a risk to economic growth and are likely to raise inflation in the US. Fed rate cut expectations dropped after Powell’s comments, putting pressure on gold prices.

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Written by:
Myrsini Giannouli

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