- Gold price jumps over 2% on Wednesday with US tariffs being switched on.
- Risk-off mood and rising bets of Fed rate cuts amid recession fears also benefit Gold.
- Gold bounces from the sub-$3,000 region to just below $3,050 at the time of writing.
Gold price (XAU/USD) bounces higher and recovers to $3,045 at the time of writing on Wednesday after United States (US) President Donald Trump’s tariffs came into effect. At one point this week, markets were hoping for a last-minute solution as several news outlets informed on Monday that President Trump was considering a 90-day pause in tariffs for all countries except China. However, the White House stated that any suggestion that President Trump was considering a 90-day pause in tariffs was “fake news.”
“Gold’s rebound reflects growing investor anxiety over tariff threats and the potential reshaping of global trade norms,” says Christopher Wong, a foreign currency strategist at Oversea-Chinese Banking Corp. Bullion remains a good hedge against a more disorderly global economy, Wong said, Bloomberg reports. The market also speculates that heightened volatility may prompt the Federal Reserve (Fed) to speed up interest rate cuts to prevent a recession. Lower rates typically benefit Gold, which doesn’t pay interest.
Daily digest market movers: More rate cut bets
- Shares of Muthoot Finance, an Indian financial corporation and the largest Gold loan non-bank financial company in the country, declined as much as 6.3% after the Indian central bank said it would undertake a comprehensive review of gold loan regulations, which could potentially increase competition in the sector.
- The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve (Fed) in May’s meeting surging to 53.5%, compared with only 10.6% a week ago. For June, the chances of lower borrowing costs are 100%, with 55.2% anticipating a 50 basis point (bp) rate cut.
- Chinese investors funneled a record amount of cash into Gold-backed Exchange Traded Funds (ETFs) last week, drawn by the asset’s safety as combative trade war rhetoric from the world’s biggest economies shakes global markets. Inflows to four major onshore Gold ETFs, including Huaan Yifu Gold ETF, hit a record of 7.6 billion yuan ($1 billion) last week, according to Bloomberg’s calculations, with strong inflows continuing this week, Bloomberg reports.
Gold Price Technical Analysis: Stretching higher again
With the US tariffs taking effect this Wednesday, the markets’ reaction is one still with some surprise. It seems that markets were positioned for some last-minute solution or delay, which would soften the actual blow and impact of the tariffs. Nonetheless, duties are taking effect immediately, and that is enough for last-minute investors to head back into Gold.
Looking up, resistances are a bit spread out, with the first cap of the R1 resistance at $3,041 being tested when writing, followed by $3,057, a pivotal level since March 20. Further up, the R2 resistance at $3,089 precedes the current all-time high of $3,167.
On the downside, the pivotal level of the March 14 high at $3,004 roughly coincides with the $3,000 round number. If this area does not hold as support, bears can target the S1 support at $2,964 and the $2,955 level, where clearly many buyers were interested in scooping up Gold on Monday. Further down, the S2 support at $2,945 is the last line of defense before the 55-day Simple Moving Average (SMA) at $2,935.
XAU/USD: Daily Chart
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
