Gold prices continued to retreat on Thursday morning, falling nearly 1% as market sentiment shifted towards riskier assets. This decline follows expectations of a new trade deal between the U.S. and the U.K. that aims to bypass U.S. tariffs. The announcement of the trade agreement is expected to be made during a press conference by U.S. President Donald Trump at 2:00 PM GMT. This news led to outflows from safe-haven assets like gold as investors anticipated a reduction in trade tensions.
Gold (XAU/USD) continued its pullback from the previous day, dipping to $3,333, driven by improved risk sentiment. The U.K. government confirmed that a trade agreement would be announced, though details remain unclear. While the agreement has yet to be finalized, the market responded with optimism, pushing gold prices lower.
The previous night’s market developments also reflected the Federal Reserve’s interest rate decision, which maintained rates between 4.25% and 4.50%. Fed Chairman Jerome Powell indicated that the U.S. economy was showing signs of recovery but warned that the impact of tariffs and increased uncertainty could begin to affect economic data later in the year. This confirmation that the Fed would not cut rates before summer fueled further risk-on sentiment.
Market Movements and Gold’s Reaction to the Fed
According to reports from Bloomberg, gold initially rose during Asian trading hours ahead of the trade agreement announcement. However, after the Federal Reserve’s rate decision, gold experienced a sharp drop when Powell stated that the Fed was not in a hurry to cut rates despite trade war uncertainties. The news triggered a shift in investor behavior, and the gold rally fizzled out.
Even as a trade agreement seemed likely, several hedge funds, such as Waratah Capital Advisors Ltd., noted that investors were still flocking to gold as a hedge against the global trade war. The company has reportedly bet on gold’s rise to enhance this year’s returns.
Technical Development for Gold Prices
Gold prices initially climbed on Thursday but encountered resistance near $3,413, a critical technical level. Should the trade deal be delayed or turn out to be a mere preliminary agreement, gold is expected to rebound to that resistance level. If the price breaks through $3,413, the next target would be $3,462. However, a further decline below the $3,338 support level could see gold testing $3,311, with a stronger support at $3,245.
Understanding Gold as an Investment
Gold has played a crucial role in human history as a store of value and medium of exchange. Today, in addition to its use in jewelry and as a luxury item, it is widely seen as a safe-haven asset. This means that in times of economic instability or geopolitical tensions, gold is considered a stable investment. It is also used as a hedge against inflation and currency depreciation since its value does not rely on any specific government or issuer.
Conclusion
Gold continues to experience volatility in response to economic factors such as trade agreements, interest rate decisions, and market sentiment. While a potential U.S.-U.K. trade deal may lead to short-term declines in gold prices, investors remain cautious, as the broader economic landscape still faces uncertainty. As always, gold remains a critical asset for diversification in a portfolio, particularly during times of risk aversion.
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