Gold rallies on global economic concerns

Gold prices rose to a historical high of $3,057 per ounce last week but lost their bullish momentum, dropping to $3,005 per ounce. Gold prices rallied on Tuesday, rising above $3,020 per ounce. If gold prices rise, they may encounter resistance at $3,057 per ounce, while if gold prices decline, support may be encountered near $3,000 per ounce. 

Gold prices reached a new all-time high of $3,057 per ounce last week and are likely to touch new historical highs in the following days.

Uncertainty over US President Donald Trump’s future policies and trade tariffs promotes a risk-averse sentiment that boosts safe-haven assets. 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.

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 remained steady on Tuesday, and the dollar index hovered close to the 104.2 level. U.S. Treasury yields gained strength, with the US 10-year bond yield rising from 4.26% to 4.34%.

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 range to 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.

Geopolitical instability is raising the appeal of safe-haven assets such as gold. Hostilities in the Gaza area have been resumed, breaking the ceasefire deal between Israel and Hamas, boosting gold prices. Meanwhile, Russian President Vladimir Putin agreed to a ceasefire deal with Ukraine that involves attacks on each other’s energy infrastructure for 30 days.

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Written by:
Myrsini Giannouli

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