As gold prices continue its ascent upwards, experts believe that the bullish momentum in the yellow metal remained intact.
The gold price rose by 19% in the past quarter, which was the strongest quarterly increase since 1986, albeit at a significantly lower price level at the time, according to Commerzbank AG.
“The main driver continues to be the high level of uncertainty surrounding the Trump administration’s US tariff threats,” Thu Lan Nguyen, head of commodity research at Commerzbank, said in a report.
At the time of writing, the most-active gold contract on COMEX was at $3,161.31 per ounce, up 0.5% from the previous close.
The global economy continues to be affected by US President Donald Trump’s aggressive trade policies, causing anxiety among investors.
Safe-haven bullion is in demand due to these policies and persistent geopolitical tensions.
Silver prices on COMEX were also 1.3% higher at $34.748 per ounce on Wednesday.
Trump’s tariffs
Gold prices have rebounded from slight losses on Tuesday, and are gaining traction again towards record highs.
Investors are seeking safe-haven assets due to ongoing concerns about the potential economic impact of Trump’s trade policies.
Gold prices have reached record highs as investors, driven by uncertainty surrounding trade policies, turn to gold as a safe haven.
Nguyen said:
The market appears to be particularly fearful of the consequences for the US economy and is therefore increasingly betting on interest rate cuts by the US Federal Reserve.
To support US manufacturing and counteract unfair trade practices, Trump is expected to impose broad reciprocal tariffs on a wide range of trading partners later on Wednesday.
“It remains unclear how broad the reciprocal tariffs announced for 2 April will be, as well as the counter-tariffs that are likely to follow, particularly from Europe and China,” Nguyen added.
Interest rates to come down?
The expected US real interest rate is being revised downward due to the inflationary impact of tariffs, which is providing upward momentum for gold prices.
Recent US macro data suggests that the Federal Reserve may need to resume its rate-cutting cycle in June, as the economy shows signs of stagflation with persistent inflation and slowing growth, Haresh Menghani, editor at FXstreet, said.
The disappointing US ISM Manufacturing Purchasing Managers’ Index (PMI) fueled concerns as it dropped from 50.3 to 49 in March, signaling the first contraction in business activity in three months.
Source: CME Group
The factory gate inflation rate rose to its highest point in almost three years, according to the report.
It also showed that the employment index fell at a faster rate during the month, indicating a decline in the sector’s payrolls.
The CME Group’s FedWatch Tool indicates that markets are pricing in an 80 basis point rate cut by the Fed this year.
This weakens the US dollar and benefits non-yielding assets like gold.
More potential for upside in gold
“From a technical perspective, the overnight pullback (in COMEX gold) from the all-time peak stalled near the $3,100 mark and the subsequent move up favors bullish traders,” Menghani said.
The daily Relative Strength Index (RSI) is significantly above 70, indicating overbought conditions.
Therefore, it would be wise to wait for a period of consolidation or a minor pullback before considering further gains, according to FXstreet.
Investors increased their exposure to gold, helping to diversify their portfolios, which led to a 9% gain in the price of gold in March.
Source: FXstreet
“Many investors have shunned gold over recent years, seeing it as a poor investment vehicle as it doesn’t pay interest,” David Morrison, senior market analyst at Trade Nation said.
“But it has gained in popularity thanks in part to large purchases by developing world central banks,” Morrison added.
The daily MACD (moving average convergence and divergence) indicates that gold is approaching the overbought levels seen in mid-February, which increases the likelihood of a price pullback.
“But what would trigger a significant sell-off? Could Trump’s tariff announcement provide the catalyst? Or will that lead to further buying?” Morrison added.
Nevertheless, the overall positive outlook indicates that it will be easier for the price of gold to rise than to fall, according to Menghani.
However, Commerzbank’s Nguyen has a different view:
Our economists do not expect the Fed to resume interest rate cuts quickly due to the inflation risks, which is why we continue to see the risk of a setback for gold.
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