Gold prices (XAU/USD) continued their upward trend on Friday, hovering over the $3,340 level. Buyers rushed into the precious metal for a third consecutive day. Amid a deterioration in global risk sentiment after US President Donald Trump announced tariffs on steel and aluminum imports, the metal moved within striking distance of its weekly high. Reactions to these developments have strengthened safe-haven flows into gold, echoing the metal’s inclusion as a barometer of market sentiment towards geopolitical tensions and economic uncertainty.
The buying interest was strong enough that as the first half of the European trading session began to play out, gold was still on a steady march upward.The gold market continues to respond to an increased level of risk aversion. What’s driving this change This change is driven by Trump’s latest tariff threats, which are sure to make investor sentiment turn ugly over the next few days.With the Federal Reserve’s recent communication also influencing market expectations, gold appears poised to end the week on a relatively stable note.
Tariff Announcements Impact Market Sentiment
President Trump’s announcement of a 35% tariff on Canadian imports, effective August 1, added to existing tensions in international trade. This move came on the heels of Wednesday’s announcement of a 50% tariff on imports of US copper. These and other similar aggressive measures have resulted in heightened alarm among investors about possible retaliatory measures and economic spillover effects.
The tariffs are pushing safe-haven flows into gold, with investors seeking refuge in a world of uncertainty.Featured image of a gold bar via Shutterstock.com Gold’s reputation as a trustworthy store of value in times of economic turmoil has never been more pertinent.Analysts believe that the current wave of tariffs will exacerbate existing inflationary pressures, leading to greater demand for gold as a hedge against rising prices.
This capacity-constrained, high-interest-rate, volatile environment has played a big role in changing market dynamics almost overnight. Tariffs and surging inflation expectations are upending the capital markets. In response, a significant number of investors are restarting their calculations and deciding that it’s time to go for safety. As a result, gold’s allure only grows, attracting more buyers looking to profit from its climb.
Federal Reserve’s Cautious Stance on Interest Rates
The Minutes from the Federal Reserve’s June 17-18 policy meeting revealed that most policymakers remain concerned about rising inflationary pressures.San Francisco Fed President Mary Daly emphasized that current monetary policy is restrictive, suggesting that it may be time for a reevaluation of interest rates.However, only a select few officials indicated that they could support rate cuts as soon as this month.
This cautious stance from the Fed is important for gold prices. Historically, lower interest rates tend to boost gold’s appeal as an investment. When inflation falls below the 2% threshold or when unemployment rates are excessively high, the Fed may consider lowering interest rates. Such a move would typically benefit non-yielding assets like gold, providing further impetus for price increases.
Despite these considerations, analysts note that a convincing break below the 100-period Simple Moving Average (SMA) on the 4-hour chart could render the XAU/USD pair vulnerable to a more pronounced decline. The market remains attuned to any signals from the Fed that could influence future monetary policy decisions.
Gold’s Price Outlook and Key Levels
Currently, gold prices are on track to end the week relatively flat, despite recent gains. The next significant hurdle for gold traders is near the $3,360-$3,362 region, which could serve as a catalyst for further upward movement if surpassed. Should bullish momentum persist, this level may attract additional buying interest and help solidify gains.
As gold approaches its weekly high, market participants are closely monitoring macroeconomic indicators and geopolitical developments that could influence price trends. The interplay between tariffs, inflation expectations, and Federal Reserve policy will remain crucial in shaping the outlook for gold in both the short and medium term.