Gold prices (XAU/USD) have experienced a notable retreat from their recent record highs, as traders opted to take profits following a period of overbought conditions. The pullback comes ahead of US President Donald Trump’s anticipated announcement regarding reciprocal tariffs. In addition, positive sentiment in the Asian equity markets and a slight uptick in the US Dollar (USD) contributed to the precious metal’s intraday decline.
Despite this, ongoing concerns about the economic impact of the Trump administration’s aggressive trade policies are expected to provide support for gold. Market participants also anticipate that the Federal Reserve (Fed) may resume its rate-cutting cycle soon, driven by fears of a tariff-induced slowdown in US economic growth. This could limit USD gains and bolster the demand for the non-yielding yellow metal.
Trump’s Trade Policies Weigh on Markets
US President Donald Trump’s remarks on Sunday dashed hopes that tariffs would be limited to a select group of countries with large trade imbalances. Instead, Trump indicated that reciprocal tariffs would affect virtually all nations. This follows his earlier implementation of a 25% tariff on steel, aluminum, and auto imports, further fueling concerns about an escalating global trade war.
Investors are now increasingly convinced that these tariff policies will slow US economic activity, prompting the Fed to reinitiate its rate-cutting cycle. Despite persistent inflation, the likelihood of further rate cuts is supporting gold prices, which hit a fresh record high on Tuesday. Market pricing currently suggests an 80-basis-point reduction in US borrowing costs by year-end, keeping US Treasury bond yields subdued. This, in turn, limits the US Dollar’s appeal and further strengthens the case for gold.
Geopolitical Tensions Heighten Investor Caution
On the geopolitical front, tensions remain high as Ukraine reports that Russia has continued its bombing campaign in Kharkiv, marking the second consecutive night of strikes. Ukrainian President Volodymyr Zelenskyy revealed that Russia has launched over 1,000 drones in the past week, urging the US and its allies for a response.
In Israel, the military has ended its ceasefire with Hamas and resumed air and ground operations, issuing evacuation orders for Rafah in preparation for a potential ground offensive. These developments further escalate the risks in the region, adding to investor uncertainty.
Key US Data and Trump’s Tariff Announcement in Focus
Traders are closely watching the upcoming US macroeconomic data releases, which are set to kick off a new month. These include the JOLTS job openings and ISM Manufacturing PMI on Tuesday, followed by the ADP report on Wednesday, US ISM Services PMI on Thursday, and the crucial Nonfarm Payrolls (NFP) report on Friday. However, the focus remains squarely on Trump’s imminent reciprocal tariff announcement, scheduled for later today at 19:00 GMT. This announcement is expected to significantly influence broader risk sentiment and USD price movements, which will likely impact the XAU/USD pair.
Technical Outlook: Gold Price Likely to Remain Bullish
From a technical standpoint, the Relative Strength Index (RSI) remains above the 70 mark, signaling overbought conditions. This suggests a period of consolidation or a mild pullback could be imminent before any further upward movement in gold prices. Despite the corrective slide, the breakout above the $3,100 mark suggests that the path of least resistance for gold remains upward. Therefore, any pullback is likely to be seen as a buying opportunity.
Immediate support for gold is seen in the $3,128–$3,127 range, followed by the $3,100 level. A sustained break below $3,100 could trigger long-unwinding and push prices lower, potentially testing the $3,076 area or the $3,057–$3,058 support zone. Further declines could bring the $3,000 psychological level into play, which could serve as a strong base for short-term traders.
Conclusion
Gold prices are currently experiencing a pullback after reaching record highs, driven by profit-taking, geopolitical tensions, and the anticipation of US President Trump’s announcement on reciprocal tariffs. While short-term fluctuations may occur, the broader outlook for gold remains positive, supported by ongoing concerns over global trade tensions and expectations of a potential rate-cutting cycle by the Federal Reserve. Investors will closely monitor upcoming US economic data and geopolitical developments, which will continue to influence market sentiment. With strong technical support levels and the persistent appeal of gold as a safe haven, any corrective pullback may present a buying opportunity for bullish traders.