Safe-haven appeal wanes, leading to gold price decline as traders shift focus
In Bengalaru, gold prices slid on Wednesday, influenced by a stronger greenback and easing trade tensions. Gold took a hit, with spot gold plunging 0.4% to $3,302.58/oz, while US gold futures dropped 0.7% to $3,310.70.
The dollar saw a slight uptick against a variety of currencies, making gold costlier for foreign buyers. According to Nicholas Frappell, global head of institutional markets at ABC Refinery, the minimal revival of broad dollar strength contributed to a brief retreat in gold prices.
While US President Donald Trump officially softened the blow of his auto tariffs on Tuesday, the lingering impact of persistent high tariffs and the shaken confidence in US assets still lingers, as Scott Rodda, financial market analyst at Capital.com, explained.
Gold prices surged to a record high of $3,500.05/oz on April 22 due to global economic uncertainties. Investors will keep a keen eye on crucial economic data, including the US Personal Consumption Expenditures (PCE), due later in the day, and the nonfarm payrolls report on Friday.
Analysts predict a cooling PCE print, which could reinforce market expectations for Fed rate cuts. By keeping real yields lower and reducing the opportunity cost of holding non-yielding bullion, a subdued PCE could prop up gold prices. Conversely, an upside surprise in PCE could squeeze gold by reducing bets on Fed easing, possibly signaling persistent price pressures and delayed rate cuts.
Currently, traders anticipate the Fed to slash rates by approximately 95 basis points by year-end. A low PCE outcome could fortify this outlook, boosting gold's appeal as a hedge against monetary easing. Meanwhile, a stronger PCE could boost the dollar and push down gold prices due to the inverse relationship between these assets.
In the end, gold's future trajectory depends on the PCE's influence on Fed expectations and risk sentiment. The Fed's response function is contingent on whether inflation data confirms the necessity for preemptive rate cuts amid trade-related growth risks. Gold's ability to maintain its position above $3,300/oz indicates that market participants are betting on a balanced outcome, with significant movements expected post-release.
- The strengthening dollar, due to easing trade tensions, made gold more expensive for foreign buyers in the markets, causing gold prices to fall in Bengalaru.
- The minimal revival of broad dollar strength, as explained by Nicholas Frappell, contributed to a brief retreat in gold prices in the investing sphere.
- While the official softening of auto tariffs by US President Donald Trump alleviated some uncertainties, the lingering impact of persistent high tariffs and shaken confidence in US assets still looms, according to Scott Rodda.
- Analysts predict that a cooling PCE print could reinforce market expectations for Fed rate cuts, potentially boosting gold prices due to its role as a hedge against monetary easing.
- By contrast, an upside surprise in PCE could squeeze gold by reducing bets on Fed easing, possibly signaling persistent price pressures and delayed rate cuts, which could push down gold prices and boost the dollar.
