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Safe-haven demand for gold remains strong
The gold (XAU) price surged by 3.58% on Wednesday. Investors continued to buy safe-haven assets due to the intensifying trade conflict between the U.S. and its trading partners, particularly China.
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Possible effects for traders
Gold, which is traditionally seen as a hedge against political and economic uncertainty and inflation, has risen by more than 27% this year. Over the past two and a half years, XAUUSD has doubled its value from $1,620 in November 2022 to around $3,300 today. The recent surge in gold is driven by an ongoing trade war between the U.S. and China, with no resolution in sight. Most recently, China ordered airlines not to take further deliveries of Boeing aircraft, while the U.S. government limited Nvidia's H20 artificial intelligence chip exports to China.
Meanwhile, Jerome Powell, U.S. Federal Reserve (Fed) Chair, said the Fed would proceed with interest rate decisions only after analysing economic data. He also raised concerns about the effects of Trump's tariff policies on inflation and employment, which could deviate from the Fed's targets. Despite the increased likelihood of accelerating inflation and higher interest rates, the market paradoxically anticipates a dovish stance from the Fed. The latest interest rate swaps market data currently implies more than a 30% chance of 100 basis points (bps) worth of rate cuts by the end of the year. As a result, the U.S. Dollar Index (DXY) continues to move near multi-year lows, making gold more attractive for foreign buyers. However, if investors' dovish expectations moderate in response to higher inflation, XAUUSD may correct downwards. Still, technical indicators remain bullish, so investors will likely buy any dips in gold. 'The rally has become a bit unhinged, leaving it at risk of corrections. However, we have for more than a year now seen corrections to be shallow, with underlying bids waiting on any setbacks', said Ole Hansen, head of commodity strategy at Saxo Bank.
XAUUSD remained relatively flat during the Asian and early European trading sessions. Today, the European Central Bank (ECB) rate decision at 12:15 p.m. UTC might trigger some volatility. Additionally, U.S. Jobless Claims at 12:30 p.m. UTC will shed light on the state of the U.S. labour market, potentially altering Fed monetary policy expectations. Moreover, traders should monitor any tariff-related news and developments around trade negotiations. Key levels to watch are resistance at $3,381 and support at $3,305.
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