In fact, gold prices—the price of gold tracked by the XAU/USD currency pair—rocketed during the majority of the first half of the European session on Thursday. They hit the upper bound of their weekly low-high range. The jump comes during a time of new trade worries that have recently helped boost demand for other safe-haven assets, including gold. At the same time, a weakening US dollar has given further lift to XAU/USD, making for a more conducive environment for appreciation.
The drivers behind the recent market dynamics are indicative of heightened fear to ongoing trade tensions. These issues, along with rising inflation, have pushed investors into safe-haven assets, with gold being the first option. The safe-haven US dollar fell to a nearly two-week low in response. This dollar weakness temporarily increased demand for gold, creating the perfect environment for XAU/USD to flourish in the choppy market.
Trade Concerns and Safe-Haven Demand
The intensification of trade matters has hurt market psyche greatly. As market turmoil has unfolded in 2020, investors have turned to gold with a vengeance – as always happens when this safe-haven asset becomes in demand. On Thursday, rumors swirled that US President Donald Trump would take historic action. So he signed an executive order that slapped a massive 25% tariff on all Indian imports. This action increased uncertainty and drove even more money into gold investments.
As worries about trade war persist, XAU/USD has seen buyers flood into this safe haven. This demand is fueled not just by tariffs but by more general concerns about the stability of the global economy. Continuous back and forth negotiations between the US and its trade partners have kept investors on edge. As a direct consequence, they are soaring to gold for shelter.
Moreover, dovish tones from the US Federal Reserve played a part in boosting gold prices outlook. Market analysts expect that the Fed will restart its medley of rate cuts in September, pushing flows towards XAU/USD. As interest rates remain low, the effective cost of holding nonyielding assets such as gold declines. This pushes further investors to flock to gold as a reliable safe-haven commodity.
USD Weakness and Technical Indicators
The US dollar’s decline played a pivotal role in supporting XAU/USD’s rise. On Wednesday, the dollar slid to a one-week low. With a dovish Fed seemingly in the cards, it couldn’t mount much of a comeback. This would provide a constructive backdrop for gold, given that weaker dollar values generally make gold more affordable for foreign purchasers.
XAU/USD is exhibiting some extremely bullish technical configurations. In the last two months, it created a big V-shaped recovery from the 200-period SMA (Simple Moving Average) in 4-hour chart. As an added benefit, this rebound solidifies the case for more appreciation to come in gold prices. Regardless, it is now important for bulls to keep a close eye on important resistance levels. A move beyond the $3,400 mark could signal a shift in momentum, potentially leading to a retest of previous all-time highs around the $3,500 psychological threshold.
So caution should be the order of the day. The mixed oscillators on the daily chart suggest that $ADA’s bullish future may be tested in the near future. Conversely, if XAU/USD slips under $3,315, it could trigger technical selling pressure. Such a positive move would drive prices down closer to that $3,300 level.
Market Sentiments and Future Outlook
The combination of buoyant risk sentiment and persistent trade woes creates a dichotomy for XAU/USD. This bullish risk tone has been spurred on by recent overnight gains on Wall Street, which could limit gains for gold prices. In the meantime, investors are weighing a need for decent safe-haven investments with the news of better performance in the stock markets.
Even with these contrasting signals, XAU/USD is feeling a floor put in from sturdy forward of $3,350 on any corrective pullbacks. Analysts say that if the buying carries through above $3,400 it will solidify the short-term bullish pattern in gold. That momentum could subsequently carry gold close to intermediate resistance around $3,420-$3,422.
As trade tensions continue to develop, the Federal Reserve finds itself at a critical juncture. Market participants will be eager to watch how these factors continue to influence XAU/USD pricing moving forward. A clear and confident breakout above key resistance levels would be needed to re-ignite bullish momentum. On the flip side, if key support levels are not defended, gold price may see heightened volatility.