Gold prices surged past the $3,200 an ounce level on Friday for the first time ever as fresh buying was supported by escalating US-China trade tensions.
At the time of writing, the June gold contract on COMEX was at $3,233.97 per ounce, up 1.8% from the previous close.
The contract had hit a record high of $3,240.20 per ounce earlier in the trading session.
“The US Dollar (USD) downward spiral and escalating trade war between the United States (US) and China keep boosting the safe-haven appeal of gold price,” Lallalit Srijandorn, forex editor at FXstreet, said in a report.
The value of the US dollar experienced a decline of nearly 1% when compared to other major currencies.
This depreciation in the dollar’s value had a direct impact on the price of gold, making it more affordable for buyers who reside outside of America.
Tariffs
Tensions between the US and China escalated as President Donald Trump increased tariffs on Chinese imports to 145%.
This move was met with retaliation from Beijing, who matched Trump’s tariff hikes, raising concerns that they could impose duties on US goods beyond the existing 84%.
The escalating trade war between the two largest economies had a ripple effect on global markets, causing major stock indexes to fall.
While Trump’s decision to raise tariffs on Chinese goods signaled a hardening stance on trade, he also announced a 90-day pause on previously announced tariffs for numerous other countries.
This temporary reprieve offered a glimmer of hope for easing trade tensions on other fronts, but the focus remained on the escalating conflict between the US and China.
David Morrison, senior market analyst at Trade Nation said:
Gold’s gains didn’t come on the back of President Trump’s tariff reductions. In fact, gold sold off in the immediate aftermath of that announcement.
The tit-for-tat tariff increases between the two countries fueled fears of a protracted trade war that could disrupt global supply chains, stifle economic growth, and lead to higher prices for consumers.
The uncertainty surrounding the trade conflict and its potential consequences contributed to market volatility and investor anxiety.
Gold’s pullback encourages fresh buying
According to Morrison, the sell-off in the gold market last week encouraged some fresh buying among investors.
Last week, gold prices fell in tandem with stocks and other commodities, and dipped below $3,000 briefly for the first time in a month.
Gold prices since that have been making steady progress throughout this week.
“This suggests that the pullback from last Thursday which saw gold fall from record highs to test support just north of $2,950, did just enough to encourage fresh buying,” Morrison added.
It certainly helped to take the daily MACD (moving average convergence and divergence) down from overbought levels.
However, the rally in gold prices this week did not begin from a position of strength, according to Morrison.
Bullish traders would have more confidence in the recent market gains if they had followed a longer period of consolidation.
“In other words, this week’s rally looks fragile,” Morrison noted.
Rate cut expectations
Apart from trade tensions and geopolitical instability, investors also monitored the expectations of the US Federal Reserve cutting interest rates this year.
Data showed that US consumer prices unexpectedly fell in March, but inflation risks remain and are tilted to the upside.
As a result, traders are now betting that the Fed will resume cutting rates in June and could reduce them by a full percentage point by the end of 2025.
“Markets have been changing their rate expectations at break neck speeds of late,” Zain Vawda, market analyst at OANDA, said.
“As developments around tariffs and their impact continue, I expect rate cut expectations to continue to fluctuate. More data will be needed before the Fed is comfortable making any move,” Vawda noted.
Meanwhile, spot silver prices were 1.5% higher at $31.225 per ounce on Friday.
“Silver continues to struggle to make solid upside progress. But the daily MACD looks very oversold currently,” Morrison added.
This is definitely one to watch over the rest of the year.
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