Gold prices scaled fresh record highs on Thursday on increasing safe-haven demand as concerns over a global trade war intensified.
“Apart from this, a fresh leg down in the US Treasury bond yields keeps the US Dollar (USD) bulls on the defensive and lends additional support to the commodity,” Haresh Menghani, editor at FXstreet, said in a report.
US President Donald Trump announced on Wednesday that his administration plans to impose heavy tariffs on a range of imported goods.
These tariffs could be implemented as early as next month, signaling a potential escalation in ongoing trade tensions between the US and its trading partners.
This announcement has triggered concerns among investors about the potential negative economic impacts of a trade war, leading to increased demand for safe-haven assets such as gold.
The price of gold has risen as a result, as investors seek to protect their wealth from the potential volatility and uncertainty associated with escalating trade tensions.
At the time of writing, the April gold contract on COMEX was at $2,969.55 per ounce, up 1.1% from the previous close.
The contract had hit a fresh lifetime high of $2,972.01 per ounce earlier in the session.
Dollar and bond yields fall
In a recent Fox News interview, US Commerce Secretary Howard Lutnick shed light on President Trump’s ambitious tax reform plans.
According to Lutnick, the President’s ultimate goal is to completely dismantle the Internal Revenue Service (IRS) and implement a system where all individuals and entities outside the US would be subject to taxation.
This statement has sparked significant debate and speculation about the potential implications of such a drastic overhaul of the US tax system.
The US Dollar is currently facing challenges in maintaining its upward momentum, despite experiencing a slight recovery over the past two days.
This difficulty arises from a renewed decline in US Treasury bond yields, which has inadvertently bolstered the appeal of precious metals like gold and silver.
The inverse relationship between bond yields and precious metal prices means that as bond yields fall, investors often turn to precious metals as a safe-haven asset, driving their prices higher.
Consequently, the US Dollar, which typically benefits from higher bond yields, is struggling to capitalise on its recent gains due to this shift in investor sentiment towards precious metals.
Fed minutes
Meanwhile, the Federal Open Market Committee (FOMC) policy meeting minutes released on Wednesday, showed that officials acknowledged a significant level of uncertainty surrounding the economic outlook.
This uncertainty necessitates a cautious and measured approach by the central bank when contemplating any future adjustments to interest rates.
The minutes highlighted the need for the FOMC to carefully assess incoming economic data and evolving financial conditions before making any decisions regarding further interest rate cuts.
Carsten Fritsch, commodity analyst at Commerzbank AG, said:
Gold continues to benefit from the uncertainty surrounding the US government’s tariff policy.
Central bank buying should also continue to provide support, even if there is no new data on this.
US Fed Vice Chairman Philip Jefferson acknowledged the strength of the US economy and labor market, while noting that inflation, although easing, remains high.
He cautioned that returning to the 2% inflation target may not be a smooth process.
Additionally, the USD bulls remain unimpressed and the non-yielding yellow metal uninfluenced by Chicago Fed President Austan Goolsbee’s remarks, according to Menghani.
Goolsbee said despite a decline, US inflation remains too high, and interest rates can fall further once inflation drops.
Gold remains overbought
“There must be a large number of traders who switch on their screens each morning expecting a $100-plus overnight slump in the price of gold,” David Morrison, senior market analyst at Trade Nation said.
Instead, gold continues to make steady upside progress.
The Moving Average Convergence Divergence (MACD) indicator, a popular tool used to identify overbought and oversold conditions, currently suggests that gold is in overbought territory.
Source: FXstreet
This implies that the price of gold may have risen too far and too fast and could be due for a pullback or correction in the near future.
Traders and investors may interpret this as a signal to exercise caution and consider taking profits or reducing exposure to gold.
Morrison added:
Yet this hasn’t put off fresh buyers, so far. One day that will change. But until then the bulls appear happy to make hay while the sun shines.
“Nevertheless, the near-term bias remains tilted firmly in favor of bullish traders and suggests that the path of least resistance for the XAU/USD pair remains to the upside,” Menghani said.
A sustained strength above the $2,945-$2,950 area will signal a breakout from the recent consolidation phase and short-term range, paving the way for an extension of the well-established two-month uptrend, according to Menghani.
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