This week, all eyes will be on the US labor market. Still others are growing more alarmed at signs of an impending loss of economic steam. Adding a bearish variable of their own on top of those external factors, the certainty of continued uncertainty casts a long shadow over financial markets. The White House trade representative’s office says to expect the announcement of reciprocal tariffs on Wednesday. This last bit of news is causing jitters among investors, particularly as they await the effects of the stimulus on various sectors, including gold prices.
As the week progresses, the realization of these tariffs make them a threat. This would lead to relief that is short-lived at best, as relief in gold prices would be mostly profit-taking. The market, unfortunately, seems to expect that once the tariffs go into effect, any resulting drops in gold prices will be temporary. This sky-high expectation is indicative of the overall nervousness in the air regarding economic output as well as positive trade policy.
Concerns Over Economic Growth
Recent data has raised alarm bells about a deepening crisis of confidence in the US economy. Signs of a deceleration have already come in, causing many economists and analysts to re-evaluate their optimistic 2022 predictions. Yet a growing tide of evidence suggests economic momentum is starting to slip away. This trend is contributing to increasing general uncertainty in the market.
There are sufficient underlying data that have raised red flags for any careful observer. Analysts are observing contradictory hog-houses in sectors and industries rattled by the pandemic. Each one points to an economy that’s not quite as strong as we aspired to think. As market participants continue to digest this news, they are unfortunately left with questions revolving around the sustainability of our current growth trajectory.
The backdrop of current and ongoing trade tensions only adds to these concerns. As US tariffs continued to be in a state of uncertainty, they have contributed to a heightened volatility in financial markets. Investors big and small are understandably spooked. They are very much on the lookout for any new sign that might allay fears about hardening economic headwinds.
Tariffs and Market Reactions
On Wednesday, the White House is expected to roll out reciprocal tariffs at an event scheduled for 20:00 GMT. Information about the overall targets and scale of these levies is still hard to come by. The administration’s unwillingness to share concrete details has forced much of the trading and banking community to wonder about the possible consequences.
Economists have largely ranged between skeptical and vehemently opposed on the subject of tariffs being utilized as an economic management tool. Proponents claim that these kinds of measures can shield domestic industries from foreign competition and promote home-grown economic development. Others argue that they cause higher costs for consumers and hurt American businesses’ relationships with foreign trading partners. This stark dichotomy fuels perennial and heated arguments over where US trade policy should go, and what the impacts—economic or otherwise—should be.
Industry analysts are quick to point out that Mexico has slipped into first place as the US’s largest supplier. It recently celebrated an amazing $466.6 billion in trade, according to the US Census Bureau. This jaw dropping number is a testament to Mexico’s growing importance on US trade landscape. More critically, it poses serious doubt on how such tariffs would impact future trade relations between the two countries.
Gold Market Dynamics
Significant uncertainty remains on economic conditions and trade policy. Consequently, gold has emerged as a primary haven for investors seeking shelter. Gold exchange-traded funds (ETFs) currently maintain the highest assets under management of all China’s commodity-related rivals. This story was given to Reuters by info that had not been made public. This development reinforces the trend towards gold being sought as a safe-haven asset during stormy market seas.
Putting the technical indicators for gold aside, there is major resistance on gold’s calendar. The daily R1 resistance is located at $3,141. At the same time, the initial all-time high of $3,149 is an important level for day traders to watch. The first strong S1 support level comes in at $3,093, which is much more regionally distant. This amount might be pushed without erasing all the progress made at the first of the week.
Market analysts say traders are waiting their focus on resistance levels. Yet the full picture is more bullish for gold, as they look at growing risks related to slowing economies and rising protectionism resulting from trade wars. How these factors come together will be key to deciding gold’s path in the next weeks.