Gold prices have reached an all-time high, driven by concerns over US trade policies and potential Federal Reserve actions.
Key Takeaways:
- Gold soars 1.70% to a new record of $2,985, fueled by US trade policy uncertainty.
- Conflicting signals from Trump administration officials on trade-induced recession fears drive investors to Gold and the Japanese Yen.
- Market focus shifts to the upcoming Federal Reserve policy decision, with expectations of unchanged rates but crucial insights from new economic projections.
Gold prices skyrocketed on Thursday, reaching a record high of $2,989. The precious metal is poised to extend its rally toward the $3,000 mark, buoyed by uncertainty over US trade policies and expectations that the Federal Reserve (Fed) might lower interest rates. The XAU/USD pair is currently trading at $2,988, up 1.86%.
The yellow metal's advance is expected to continue as US President Donald Trump pursues a trade war with allies and adversaries to reduce the trade deficit. Frequent changes in import duties keep money flowing to Gold's safe-haven appeal.
Recently, some US officials have downplayed concerns about Wall Street's reaction to the Trump administration's trade policies. US Treasury Secretary Scott Bessent clarified that his previous comments about a “detox period” did not necessarily imply a recession. In contrast, US Commerce Secretary Howard Lutnick suggested that a recession would be “worth it” to implement the current administration’s policies.
This mixed messaging has encouraged investors to continue selling US equities and buying safe-haven assets such as Gold and the Japanese Yen (JPY).
Economic data has taken a backseat, overshadowed by trade tariffs. Earlier reports from the US Bureau of Labor Statistics (BLS) indicated that producer-side inflation remained largely unchanged with a slight decline. Additionally, the number of Americans filing for unemployment benefits decreased last week, according to the BLS.
Looking ahead, traders are anticipating the University of Michigan (UoM) Consumer Sentiment report for March. However, the primary focus remains on the Federal Reserve's (Fed) monetary policy decision next week. The Fed is expected to hold rates steady, update economic projections, and provide policy guidance using the “dot plot.”
Market Movers: Gold Defies Dollar Strength
Despite a strong US Dollar, Gold prices continue to climb, influenced by several factors:
- The US 10-year Treasury bond yield declined by 4.5 basis points to 4.270%.
- US real yields, measured by the US 10-year Treasury Inflation-Protected Securities (TIPS) yield, increased slightly to 1.99%.
- The US Dollar Index (DXY) rose 0.27% to 103.85.
- The US Producer Price Index (PPI) for February rose 3.2% YoY, below the forecast of 3.3%.
- Initial Jobless Claims for the week ending March 8 decreased to 220K, beating expectations.
Economists caution that tariffs on US imports could lead to renewed inflation in the coming months. Money market futures traders have priced in 74 basis points of easing by the Federal Reserve (Fed) by the end of the year. The Atlanta Fed GDPNow model predicts a first-quarter 2025 GDP of -2.4%, marking the first negative print since the COVID-19 pandemic.
Technical Outlook: Eyes on $3,000
Gold prices are trading at all-time highs of $2,989, surpassing the previous year-to-date (YTD) high of $2,954 on February 20. The Relative Strength Index (RSI) indicates strong bullish momentum, suggesting further upside potential. The next resistance level is $3,000, with a potential for $3,050 and $3,100 if the price breaks higher.
Conversely, a drop below $2,950 could lead to support at $2,900 and $2,850, followed by the February 28 low of $2,832.
Gold FAQs
Why do people invest in Gold?
Gold has been a store of value and a medium of exchange throughout history. It is considered a safe-haven asset and a hedge against inflation and currency depreciation.
Who buys the most Gold?
Central banks are the largest Gold holders, diversifying their reserves to support their currencies and improve economic stability. High Gold reserves enhance a country’s solvency.
How is Gold correlated with other assets?
Gold has an inverse correlation with the US Dollar and US Treasuries, as well as with risk assets. A weaker Dollar typically leads to higher Gold prices, while stock market rallies tend to weaken Gold.
What does the price of Gold depend on?
Gold's price is influenced by geopolitical instability, recession fears, interest rates, and the behavior of the US Dollar (USD). As a yield-less asset, Gold tends to benefit from lower interest rates, while a strong Dollar can control its price.