Gold prices supported by weakening dollar

Gold prices remained steady on Wednesday, oscillating around the $2,920 per ounce as the dollar weakened. If gold prices rise, they may encounter resistance at $2,956 per ounce, while if gold prices decline, support may be encountered near $2,830 per ounce. 

Gold prices reached a new all-time high of $2,956 per ounce last week but could not maintain their bullish momentum as many traders rushed to take their profits and plummeted towards the end of the week. Gold prices rallied this week, however, on renewed US tariff concerns and a weaker dollar. 

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 plummeted on Wednesday and the dollar index dropped from 105.6 to 104.3. On the other hand, US treasury yields gained strength, with the US 10-year bond yield rising from 4.25% to 4.28%.

Uncertainty over US President Donald Trump’s future policies and trade tariffs promotes a risk aversion sentiment, raising the appeal of safe-haven assets, such as gold. Concerns that Trump’s trade policies may ignite global trading wars are raising the appeal of gold. Trump has threatened that he will announce reciprocal tariffs on many countries, which would raise US import taxes to match those imposed by the country’s other trading partners. In his address to the US Congress early on Wednesday, Trump confirmed that he plans to impose reciprocal tariffs, which will take effect on April 2.

Trump’s tariff plans change rapidly causing confusion and volatility in markets. Trump’s plans of imposing 25% tariffs on Canada and Mexico had been postponed for a month after both countries agreed to tighten border activities. On Monday, however, Trump stated that he intends to go ahead with imposing tariffs on his neighboring countries and the tariffs against Canada and Mexico took effect on Tuesday. Trump has also imposed additional 10% tariffs on China starting on Tuesday, bringing Chinese duties to a total of 20%. 

Trump’s tariffs are likely to raise global inflation and lower economic outlook, thus promoting a risk aversion sentiment that boosts safe haven assets. The Canadian government has announced that they would implement 25% retaliatory tariffs on US imports starting on Tuesday. Trump escalated matters further, threatening Canada with increased reciprocal tariffs. China retaliated to the increased US duties by announcing 10%-15% tariffs on certain US imports, such as farm products, starting from March 10. 

In addition, US President Donald Trump’s plans to broker a peace treaty between Russia and Ukraine have so far been fruitless. On Friday, Trump had a heated meeting with Ukrainian President Volodymyr Zelenskyy in the White House. The clash confirmed that a peace treaty is not yet on the horizon, boosting safe-haven demand. On Sunday, however, European leaders gathered to discuss the situation in Ukraine. British Prime Minister Keir Starmer stated that European leaders have agreed to draft a peace proposal between Russia and Ukraine and send it to Washington.

Gold prices supported by rising Fed rate cut expectations. The US Federal Reserve held interest rates steady at its January meeting after delivering three consecutive rate cuts in 2024. FOMC policymakers voted unanimously to maintain the federal funds range to a target range of 4.25% to 4.50%. Market odds of rate cuts within the year are on the rise, putting pressure on US treasury yields and boosting gold prices. Markets are currently pricing in at least two rate cuts within 2025, with rising possibility of a third one at the end of the year.

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Written by:
Myrsini Giannouli

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