Gold Fluctuates Amid Shifts in Risk Sentiment and Market Expectations
In a dramatic turn of events, gold prices have plunged more than 2.50% on Wednesday, wiping out a significant portion of its daily gains. The sudden drop has left investors scratching their heads, wondering what triggered this sharp decline in the precious metal. As we delve into the details, it becomes clear that the narrative in the financial markets has shifted significantly.
The Role of Tariffs in Driving Price Action
Despite the downturn, tariffs continued to drive price action in the gold market. The ongoing trade tensions between the US and China have been a major contributor to the volatility in gold prices. The news that the US might slash duties on Chinese products sent US equities higher, while gold prices plummeted. This is not the first time tariffs have played a significant role in shaping the gold market, and it’s clear that traders are still wary of the impact of trade tensions on the precious metal.
US Treasury Secretary Scott Bessent’s Cautionary Tone
However, US Treasury Secretary Scott Bessent has poured cold water on traders’ mood, hinting that the US has not offered to lower tariffs on Chinese products unilaterally. He stated, “There is no intention to lower tariffs on Chinese products unilaterally. China must do its part.” This statement has added fuel to the fire, as investors await the next move from the US government.
Trump’s Statement on Fed Chair Powell
In a surprise move, US President Donald Trump announced that he has “no intention” of firing Federal Reserve Chair Jerome Powell. This statement has calmed market concerns, and gold prices have followed suit. Trump said, “The press runs away with things. No, I have no intention of firing him. I would like to see him be a little more active in his idea to lower interest rates.” This statement has sent a positive signal to the market, and gold prices have responded accordingly.
The Market Outlook
Despite the volatility, traders expect the Federal Reserve to keep interest rates unchanged at the upcoming meeting. The probability of this event is 94%, according to Prime Market Terminal. However, traders anticipate that the Fed funds rate will end at 3.45%, a slight easing from the current rate.
US Economic Data
The US economic docket for the week includes several key events, including Fed speakers, Durable Goods Orders, and the University of Michigan Consumer Sentiment final reading. These events will provide valuable insights into the state of the US economy and will likely have a significant impact on gold prices.
Technical Analysis
Gold remains upward biased despite the ongoing pullback driving the yellow metal below $3,300. To confirm this trend, sellers must drag XAU/USD below the April 3 peak of $3,167, which would test the next key support level, being the 50-day Simple Moving Average (SMA) at $3,032. Conversely, if buyers reclaim $3,300, the next key resistance would be $3,450, followed by the $3,400 mark.
Market Movers
The US 10-year Treasury yield has gained two basis points to 4.371%. US real yields are edging up 1.5 bps to 2.099%. The US Manufacturing PMI in April improved from 50.2 to 50.7, contrary to other readings that dipped. The S&P Global Services PMI for the same period dipped from 54.4 to 51.4, below forecasts of 52.8.
| Event | Description |
|---|---|
| Fed Speakers | Fed speakers will provide insights into the state of the US economy. |
| Durable Goods Orders | Durable Goods Orders will provide insights into US manufacturing activity. |
| University of Michigan Consumer Sentiment final reading | The University of Michigan Consumer Sentiment final reading will provide insights into consumer confidence. |
Market Highlights
• Gold prices plummeted 2.50% on Wednesday amidst a shift in risk sentiment and market expectations. • US Treasury Secretary Scott Bessent hinted that China must do its part to lower tariffs on Chinese products. • US President Donald Trump announced he has no intention of firing Fed Chair Jerome Powell. • The probability of the Fed keeping interest rates unchanged is 94%, according to Prime Market Terminal.
Definitions
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When investors become more optimistic about the market and are willing to take on more risk, it is said to be in a “risk-on” state. This can lead to a decrease in the value of safe-haven assets such as gold.
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A reduction in interest rates by the Federal Reserve or other central banks can lead to a decrease in borrowing costs and an increase in economic activity.
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The Fed funds rate is the interest rate at which banks lend and borrow money from each other in the federal funds market.
