Gold prices reversed a slide in the Asian session and climbed back above a three-week low, though lacking follow-through momentum.
Recession fears continue to weigh on investor sentiment and favor safe-haven commodities.
Bets on more aggressive rate cuts by the Federal Reserve weakened the dollar and provided support to the gold/dollar pair.
Gold prices (XAU/USD) staged a nice intraday rebound near three-week lows around the $2972-2971 area hit on Monday in the Asian session and surged to a new daily high in the $3055 area in the last hour. Data released earlier today indicated that the People's Bank of China (PBOC) increased the country's gold reserves for the fifth consecutive month. Moreover, general risk aversion, recession fears, bets that a tariff-driven slowdown in the US economy could force the Federal Reserve (Fed) to resume its rate-cutting cycle soon, and geopolitical risks all provided tailwinds for the commodity.
However, the intraday upside soon faded as investors continued to liquidate their gold/USD long positions to cover losses from a widespread sell-off in global financial markets. Meanwhile, Friday’s stronger-than-expected US non-farm payrolls (NFP) report and hawkish comments from Fed Chairman Jerome Powell helped the US dollar (USD) stay firmly above the multi-month lows hit last week. This became another factor limiting the rise in gold prices. Nevertheless, dovish Fed expectations kept USD bulls on the defensive and helped gold prices stay above $3,000.
The intensification of the global trade war continues to fuel fears of a global recession and has led to a sustained sell-off in global stock markets. This in turn prompted traders to liquidate long positions in gold prices and raise cash to cover losses elsewhere.
The People’s Bank of China (PBOC) increased its gold reserves for the fifth consecutive month in March, according to data released on Monday. In fact, the People's Bank's holdings increased by 0.09k ounces last month, against the backdrop of increasing global trade and geopolitical turmoil.
US President Donald Trump imposed a reciprocal tariff of at least 10% on all imports on Wednesday night, with China facing a 54% tariff. Against this backdrop, China's Ministry of Commerce announced on Friday that it would impose an additional tariff of 34% on all US imports.
Meanwhile, US Commerce Secretary Howard Lutnick confirmed on Sunday that the tariffs will not be postponed and the policy will remain unchanged in the coming days and weeks. In addition, Trump said that there will be no deal with China unless the trade deficit is resolved.
The US dollar struggled to profit from a modest rebound from multi-month lows on Friday, following the release of a better-than-expected US non-farm payrolls report (NFP). In fact, the closely watched employment data showed that the economy added 228K jobs in March, compared to 117K in the previous value.
Meanwhile, Federal Reserve (Fed) Chairman Jerome Powell said inflation was close to target but still slightly elevated. Powell added that Trump's tariffs could have a strong inflationary impact and the Fed's job is to prevent temporary price increases from turning into persistent inflation.
However, investors are still pricing in the possibility that the Fed will resume its rate-cutting cycle in June and reduce borrowing costs at least four times this year. This, coupled with risk aversion, has kept the benchmark 10-year Treasury yield below 4.0%.
This in turn has curbed aggressive bets by dollar bulls and helped non-yielding gold rebound slightly from a near four-week low in Asian trading on Monday. However, the lack of follow-through momentum has made bulls cautious.
From a technical perspective, last week's sharp retracement from the all-time high stalled before the 61.8% Fibonacci retracement level, and the subsequent upward move falters near the $3,055 horizontal support breakpoint, which now turns into resistance. The latter should now serve as a key turning point for intraday traders, and after a breakthrough, gold prices may climb to the $3,080 area and then reach the $3,100 round mark.
On the other hand, the psychological $3,000 mark coincides with the 50% retracement level and now appears to protect the upcoming downside, which is located in the $2,972-2,971 area, the multi-week low hit earlier on Monday. It is followed by the 50-day simple moving average (SMA) around the $2,946 area, which, if decisively broken, could shift the short-term bias in favor of bearish traders and pave the way for further depreciation.
Gold has played a key role in human history as it is widely used as a store of value and a medium of exchange. Currently, in addition to its lustre and use in jewelry, gold is widely considered a safe haven asset, meaning it is considered a good investment in turbulent times. Gold is also widely viewed as a hedge against inflation and currency depreciation as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. To support their currencies during turbulent times, central banks tend to diversify their reserves and buy gold to boost perceptions of economic and monetary strength. High gold reserves can be a source of confidence in a country's solvency. According to the World Gold Council, central banks added 1,136 tons of gold reserves in 2022, worth about $70 billion. This is the highest annual purchase on record. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold is negatively correlated with the U.S. dollar and U.S. Treasuries, both of which are major reserve assets and safe havens. Gold tends to rise when the dollar depreciates, allowing investors and central banks to diversify their assets during turbulent times. Gold is also negatively correlated with risky assets. Stock market rallies tend to push gold prices lower, while sell-offs in riskier markets tend to benefit gold.
Prices can move due to a wide variety of factors. Geopolitical instability or fears of a deep recession could quickly push gold prices higher due to its safe-haven status. As a low-yielding asset, gold tends to rise as interest rates fall, while higher funding costs usually weigh on gold. Still, since the asset is priced in U.S. dollars (XAU/USD), most movements depend on the performance of the U.S. dollar (USD). A strong dollar tends to control gold prices, while a weak dollar can push them higher.