Gold retreats from all-time high

Gold prices edged lower on Monday, pulling back from Friday’s all-time high of $3,244 per ounce to $3,200 per ounce. Gold prices have been trading in overbought territory for the past few weeks and retreated on Monday, even though the rival dollar weakened. Demand for safe-haven assets remains elevated, however, and gold prices may still hit new historical highs this week. If gold prices rise, they may encounter resistance at the psychological level of $3,300 per ounce, while if gold prices decline, support may be encountered near $2,950 per ounce. 

Gold prices hit a new all-time high of $3,244 per ounce last week, buoyed by the dollar’s decline and trade war concerns. 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 continued to decline on Monday and the dollar index to a 35-month low of 99.6. U.S. Treasury yields also dipped, with the US 10-year bond yield dropping from 3.49% to 4.38%.

Global trade war concerns have been causing turmoil in markets. Investor confidence is low, raising the appeal of safe-haven assets. US President Donald Trump has been using threats of imposing trade tariffs as a negotiation tool to further his agenda with other countries. Trump’s tariffs are likely to raise global inflation and lower the economic outlook, promoting a risk-averse sentiment. 

Last week, Trump announced that he would pause tariffs for 90 days, against all countries, except China. 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. The situation between the US and China is continuously escalating, with both countries announcing heavier tariffs against each other every day. The US raised tariffs on China to 145% and China retaliated by increasing tariffs on US products to 125%. 

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.

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Written by:
Myrsini Giannouli

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