The selloff in gold prices since last week could indicate a much-needed pullback in the precious metal, according to experts.
Though prices have slumped below $3,300 per ounce, analysts expect the market to consolidate along the current levels.
At the time of writing, the most-active gold contract on COMEX was at $3,292.44 per ounce, down 0.2% from the previous close.
Among other precious metals, silver prices on COMEX were down 0.4% at $32.865 an ounce.
After hitting record highs of more than $3,500 an ounce last week, gold prices have slipped below the $3,300 an ounce mark on Monday.
The decline has been attributed to a possibility of a de-escalation in the ongoing trade war between the US and China.
Trade uncertainty persists
“Investors remain hopeful over the potential de-escalation of tensions between the US and China, which, along with a modest US Dollar (USD) uptick, weigh on the commodity for the second straight day,” Haresh Menghani, editor at FXstreet, said in a report.
Recent media reports highlighted China’s decision to exempt specific US imports from its 125% retaliatory tariffs.
This development coincided with signals from the US President Donald Trump’s administration last week indicating a potential easing of trade tensions with China.
Trump mentioned ongoing tariff discussions and a conversation with President Xi Jinping.
However, investor caution persisted as Treasury Secretary Scott Bessent contradicted the President’s statements on Sunday.
Bessent claimed to be unaware of any active tariff negotiations with China and uncertain about a recent communication between the two leaders. China has also refuted the occurrence of any such talks.
Thu Lan Nguyen, head of FX and commodity research at Commerzbank AG, said in a report:
However, as it remains unclear when and in what form an agreement with the Chinese leadership is possible…gold is likely to remain in demand as a safe haven for the time being.
Interest rates optimism
Recent statements from Fed Governor Christopher Waller and Cleveland Fed President Beth Hammack have bolstered expectations for potential interest rate cuts.
Waller anticipates that substantial labor market weakening, potentially triggered by tariffs, would lead to increased and accelerated interest rate reductions.
Meanwhile, depending on the data, Hammack considered that the first interest rate cut could occur as soon as June.
“Although the market-based US interest rate expectations did not move sustainably as a result – a first move is still expected by the majority in the summer – many market participants are now likely to feel strengthened in their expectations, which is also a support for the gold price,” Nguyen added.
Aside from the White House’s pronouncements, the primary focus will shift to upcoming economic data releases from the United States.
Key US economic data releases this week will be crucial for assessing the Federal Reserve’s monetary policy stance, given their current cautious approach influenced by global trade uncertainty.
Investors are particularly focused on the April US jobs data, due Friday, as well as the first-quarter GDP figures and the PCE price index, the Fed’s preferred measure of inflation.
“If these already show clear signs of a slowdown in US tariff policy, the price of gold could quickly rise again,” Nguyen said.
Sellers with the upper hand?
On Monday, gold’s movement has largely been restricted below the $3,300 per ounce mark. Prices had climbed to near $3,350 an ounce earlier in the session.
“While this is still above Wednesday’s low of $3,260, it does feel as if the sellers now have the upper hand, at least over the medium term,” said David Morrison, senior market analyst at Trade Nation.
“In the short term, it seems possible that gold will experience sharp moves in both directions,” Morrison said.
The recent sell-off, beginning Tuesday, has tempered an extremely overbought gold market, according to Morrison.
The daily moving average convergence divergence indicated that gold’s overbought condition had surpassed its peak level observed in April 2011.
The current market situation indicates a potential need for a period of adjustment.
This could manifest as a significant market downturn or an extended phase of sideways trading characterised by substantial daily price fluctuations, Morrison noted.
“Most likely, it will be a combination of the two. There’s also a smaller probability that gold does rally further from current levels, and goes on to hit fresh records,” he added.
However, some analysts still believe that gold’s rally is far from over.
Kelvin Wong, senior market analyst at OANDA, was quoted in a Kitco report:
“If there are still no breakthroughs between US-China trade negotiations, and more sector-based US tariffs are introduced, the odds of greater uncertainty in business planning and stagflation risk in the US will increase. This, in turn, would weaken the US dollar and further boost the value of gold.”
Overall, the medium-term and major uptrend phases for gold remain intact, with the next medium-term resistances at US$3,670/750 and US$3,890, supported by the weaker US dollar and the fading of the US ‘exceptionalism’ theme.
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