- The price of gold drops to about $ 3,335 in the first Asian session on Tuesday.
- The improved optimism on a commercial agreement between the US and China undermines the price of gold.
- Fed rates cut expectations could help limit the losses of the XAU/USD.
The price of gold (Xau/USD) loses ground to around $ 3,335 during the first Asian session on Tuesday. The yellow metal moves down in the middle of a modest rebound of the US dollar (USD) and a relief in tensions between the United States and China.
China exempt some US imports from its 125% tariffs on Friday, which increased the hopes that the commercial war between the US and China is close to its end, although China quickly denied the statement of US President Donald Trump that the negotiations between the two countries were underway.
The US Treasury Secretary, Scott Besent, said on Monday that the US government is in contact with China, but depends on Beijing to take the first step to descale the tariff struggle with the US due to the commercial imbalance between the two nations. The relief of commercial tension fears between the two largest economies in the world reduces the demand for traditional refuge assets such as gold. In addition, a stronger dollar added more winds against precious metal.
“The comments last week of the White House have fed the optimism that a commercial agreement between the US and China could materialize, which has made the demand for shelter for assets such as gold decrease,” said Tim Water, head analyst at KCM Trade.
On the other hand, the growing expectations that the Federal Reserve (FED) resume its cycle of feat cuts at the June meeting could raise the price of gold without performance. Meanwhile, the Fed remains in mode of silence before its meeting of the Federal Open Market Committee (FOMC) on May 7.
The operators will be attentive to the preliminary report of the GDP of the US Q1 and the employment data of April this week, since they could offer some clues about the next policy decisions of the Fed and the economic perspectives of the USA. The expectation for April is that the US economy will add 135,000 jobs and the unemployment rate will be maintained at 4.2%. If the reports show a weaker result of the expected, this could drag the dollar down and increase the price of the merchandise called in the USD in the short term.
FAQS GOLD
Gold has played a fundamental role in the history of mankind, since it has been widely used as a deposit of value and a half of exchange. At present, apart from its brightness and use for jewelry, precious metal is considered an active refuge, which means that it is considered a good investment in turbulent times. Gold is also considered a coverage against inflation and depreciation of currencies, since it does not depend on any specific issuer or government.
Central banks are the greatest gold holders. In their objective of supporting their currencies in turbulent times, central banks tend to diversify their reserves and buy gold to improve the perception of strength of the economy and currency. High gold reserves can be a source of trust for the solvency of a country. Central banks added 1,136 tons of gold worth 70,000 million to their reservations in 2022, according to data from the World Gold Council. It is the largest annual purchase since there are records. The central banks of emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has a reverse correlation with the US dollar and US Treasury bonds, which are the main reserve and shelter assets. When the dollar depreciates, the price of gold tends to rise, which allows investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rebound in the stock market tends to weaken the price of gold, while mass sales in higher risk markets tend to favor precious metal.
The price of gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of gold to rise rapidly due to its condition of active refuge. As an asset without yield, the price of gold tends to rise when interest rates lower, while the money increases to the yellow metal. Even so, most movements depend on how the US dollar (USD) behaves, since the asset is quoted in dollars (Xau/USD). A strong dollar tends to keep the price of gold controlled, while a weakest dollar probably thrusts gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
