Gold recently put an end to its three-day losing spree but remains weighed down by the increase in Treasury yields, which detracts from its appeal as a non-yielding investment. At the same time, market volatility is on the rise due to hefty tariffs on China and recurring recession concerns, which have wiped out recent gains in the equity markets. Key figures from the Federal Reserve, including Daly and Goolsbee, are voicing concerns over inflation risks tied to these tariffs, and investors are eagerly awaiting the release of FOMC minutes and critical CPI/PPI data.
Currently, gold prices are holding steady at $2,980 per ounce, despite earlier declines. Heightened US Treasury yields have made gold less attractive, even though there are aspirations for trade agreements amidst ongoing US-China trade tensions.
Investor sentiment took a hit as U.S. stock markets suffered notable losses. Monday’s brief rally was followed by a return to bearish conditions, with the VIX climbing, a strong signal of lingering economic uncertainty among market players.
The VIX saw a surge after the US revealed its decision to uphold 104% tariffs on China, which caused major indices like the S&P 500, Dow Jones, and Nasdaq to lose ground after their initial gains. Even though gold prices have dipped with the rise in US Treasury yields across the curve, the swaps market had hinted at a 40% probability of a Fed rate cut in May. Nonetheless, soaring yields are putting pressure on XAU/USD.
Further fueling this uncertainty, Fed officials have been weighing in publicly. Mary Daly from the San Francisco Fed noted that corporate leaders are feeling both uncertain and hopeful about growth, though she’s worried about inflation nudged higher by tariffs. Chicago Fed’s Austan Goolsbee also highlighted the higher-than-anticipated tariffs and expressed concerns about a possible resurgence of high inflation.
Investors are now turning their focus to the Fed’s recent meeting minutes and upcoming inflation figures on both consumer and producer fronts.
On a daily note, while gold prices remain strong, they’re meeting resistance due to a rise in US real yields. The yields on 10-year Treasury Inflation-Protected Securities (TIPS) edged up by six basis points to 2.071%, applying downward pressure to gold prices. The US Consumer Price Index (CPI) is anticipated to drop slightly from 2.8% to 2.6% year-over-year in March. Meanwhile, the Core CPI is expected to see a small decrease over the next year, from 3.1% to 3%.
Goldman Sachs has raised its recession probability forecast from 35% to 45% over the next year, tightening its growth predictions, with GDP expected at a mere 0.5%. They’re attributing this to tighter financial conditions, global consumer boycotts, and persistently high policy uncertainty.
Looking ahead, gold hovered close to $2,980, although market movements suggest that traders are having difficulty breaking past the $3,000 mark. Should the price fail to close above this level, it might test the 50-day Simple Moving Average (SMA) at $2,947. A drop below this point could push XAU/USD towards the $2,900 threshold and further down to the 100-day SMA at $2,805.
In the backdrop of this market volatility is the complex and ongoing US-China trade war, which initiated in 2018 following significant tariffs imposed by the US. Initially, these tensions seemed to ease slightly with the signing of the US-China Phase One trade deal in 2020. However, policies fluctuated under different administrations, and the past tensions have been reignited with a new wave of tariffs under President Trump’s recent term, bringing fresh challenges to the global economy and impacting consumer inflation directly.
Through the many ebbs and flows, it seems the interplay between tariffs, market sentiment, and economic data will continue to significantly influence financial markets and expectations in the weeks and months ahead.
