- Gold price depreciates as US Dollar gains ground amid rising Treasury yields
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Gold price depreciates as US Dollar gains ground amid rising Treasury yields
- Gold price declines as rising US Treasury yields weigh on non-yielding assets.
- The precious metal may find support from safe-haven demand amid the implementation of US tariffs.
- Gold also drew buyers as the US halted military aid to Ukraine.
Gold price (XAU/USD) halts its two-day winning streak on Wednesday as rising US Treasury yields pressured non-yielding assets. However, the precious metal could receive upward support from safe-haven demand amid the implementation of US tariffs. Trump's 25% levies on Mexican and Canadian imports took effect on Tuesday, alongside a hike in Chinese duties to 20%, escalating trade tensions and prompting retaliation.
However, US Commerce Secretary Howard Lutnick suggested in a Fox News interview that Trump may reconsider his tariff policy less than 48 hours after its implementation. He noted that if the USMCA rules are followed, relief could be offered. However, the New York Times reported that Trump has privately signaled that he intends to maintain the tariffs.
The safe-haven Gold attracted buyers as the US paused military aid to Ukraine. Bloomberg cited a defense official stating that all US military equipment not yet in Ukraine would be grounded, including weapons in transit via aircraft and ships, as well as those waiting in transit areas in Poland. On Friday, tensions escalated between US President Donald Trump and Ukrainian leader Volodymyr Zelenskyy during peace deal negotiations.
Gold price edges lower amid rising US Treasury yields
- The US Dollar Index (DXY), which measures the USD against six major currencies, trades around 105.70 at the time of writing, edging higher amid rising US Treasury yields with 2- and 10-year yields on US bonds standing at 3.98% and 4.25%, respectively.
- However, USD faced downward pressure amid growing concerns over slowing economic growth and the impact of tariffs on the US economy. Markets bet that President Trump will find a reason to walk back his tariff threats.
- US Commerce Secretary Howard Lutnick stated in a televised interview on Fox News that President Trump may reconsider his tariff policy less than 48 hours after its implementation. Lutnick indicated that if the USMCA rules are followed, Trump is considering offering relief. President Trump's 25% tariffs on goods from Canada and Mexico took effect on Tuesday, alongside a doubling of duties on Chinese imports to 20%.
- Canada confirmed that it will impose retaliatory tariffs on US imports. China’s Commerce Ministry announced on Tuesday that it will slap additional tariffs of up to 15% on imports of key farm products from the US.
- This raises the risk of a global trade war and weighs on investors' sentiment, which should act as a tailwind for the safe-haven precious metal and help limit any deeper losses amid a bearish tone surrounding the US Dollar.
- The Institute for Supply Management's (ISM) Manufacturing PMI slipped to 50.3 in February from 50.9 in the previous month, while the Prices Paid Index jumped to a nearly three-year high amid worries about duties on imports.
- This comes on top of worries that Trump's trade tariffs would undermine consumer spending and fuel concerns about the outlook for the world’s largest economy. This could further lend support to the XAU/USD pair.
Technical Analysis: Gold price holds key psychological support at $2,900 near nine-day EMA
Gold price (XAU/USD) is trading around $2,910 per troy ounce on Wednesday. Technical analysis of the daily chart suggests that the metal price consolidates within an ascending channel pattern, suggesting the bullish bias is intact. Additionally, the 14-day Relative Strength Index (RSI) stays above 50, reinforcing a bearish outlook.
The XAU/USD could target primary resistance at the all-time high of $2,956, recorded on February 24.
On the downside, the immediate support is found at the nine-day Exponential Moving Average (EMA) of $2,902. A break below this level could weaken the short-term price momentum and lead the price to test the lower boundary of the ascending channel at $2,583 level.
XAU/USD: Daily Chart
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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