Gold Outlook: Trade wars in full swing

Since our last report, The below report discusses the recent developments in the ongoing trade war between the US and its trading partners with a secondary focus on the CPI rates and the FOMC’s last meeting minutes. The tariff situation is extremely dynamic and thus can easily change hour by hour which in turn may have major implications for gold’s price. At the end of this report for a rounder view we intend to conclude the report with a technical analysis of gold’s daily chart.   

Trump’s Liberation Day turns into a full-blown trade war

President Trump’s “Liberation Day” occurred last week. The US announced a base 10% tariff on all imports into the US. Moreover, the US Government announced country/bloc specific tariffs with the EU facing a 20% tariff and China an additional 34% on top of the pre-imposed 20% tariff, bringing the total to 54%.

The decision by the US has been met with widespread criticism, with the EU implying that it was prepared to retaliate against the US, with the EU Foreign Affairs council releasing a statement in which it is said that “ministers also addressed the possibility of further proportionate countermeasures if needed”.

Moreover, per the same statement “The EU deeply regrets the new US tariffs and remains committed to dialogue, seeking a negotiated solution acceptable for both sides”, implying that the EU may be prepared to negotiate with Trump.

Yet, Trump per Bloomberg rejected an EU proposal to drop tariffs on all bilateral trade in industrial goods. Furthermore, China has hit back against the US by announcing their own 34% retaliatory tariff, with Trump threatening an additional 50% tariff and China then stating vowing that they will “fight to the end”.

However, on the other hand President Trump stated that many countries have called to discuss tariff deals, implying that the door for some negotiations remains open. In particular, Treasury Secretary Scot Bessent stated per some media outlets that “If there are solid proposals, we can end up with good deals”, further amplifying the possibility that the US may be willing to negotiate on tariffs.

Trade Wars and Yields

Overall, the economic trade war that has emerged continues to highlight the risks to the global economy in addition to a potential resurgence of inflationary pressures.

As a result, the concerns about the global economic health and a resurgence in inflationary pressures could aid the precious metal’s price, yet it’s recent decline could be attributed to the rise in the US10YR and 5YR Yields which may be a more attractive option for investors as they are interest bearing whereas gold is not. In our view, the ongoing trade wars appear to be just starting and thus we would not be surprised to see gold gaining as a result.

US CPI rates and FOMC’s meeting minutes

 The US CPI rates for March are set to be released on Thursday. The current expectations by economists are for the CPI rates on a Core and headline level to showcase easing inflationary pressures in the US economy. In turn this may increase pressure on the Fed to cut rates in their May meeting rather than the expected rate cute in the June meeting as implied by Fed Funds Futures.

Therefore, should the CPI rates come in as expected or lower it may weigh on the greenback whilst aiding gold’s price given their inverse relationship. Furthermore, we would like to note the FOMC’s last meeting minutes which are due out Wednesday.

Should the Fed’s minutes showcase an unwillingness to budge from their current restrictive monetary policy stance, it may aid the dollar and weigh on the precious metal’s price. Yet should the Fed imply that they may cut rates in the near future should the economic outlook worsen, it may perceived as dovish in nature and could thus aid gold’s price.

Gold Technical Analysis

XAUUSD 4H Chart

• Support: 2950 (S1), 2855 (S2), 2740 (S3) 
• Resistance: 3050 (R1), 3150 (R2), 3250 (R3)

On a technical level gold appears to have retreated from its all-time high figure near our $3150 per troy ounce resistance level. We opt for a sideways bias for the precious metal’s price and supporting our case is the break below our upwards moving trendline which was incepted on the 28  of February and the RSI indicator below our chart which currently registers a figure near 50 implying a neutral market sentiment.

For our sideways bias to be maintained we would require gold’s price to remain confined between the 2950 (S1) support level and the 3050 (R1) resistance line. On the other hand we would immediately switch our sideways bias in favour of a bullish outlook should the bulls clearly break above our 3050 (R1) resistance level, with the next possible target for the bulls being the 3150 (R2) resistance line.

Lastly, for a bearish outlook we would require a clear break below our 2950 (S1) support line with the next possible target for the bears being the 2855 (S2) support level.   

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