Gold prices are unlikely to decline significantly in the coming weeks as rising safe-haven demand continues to support the metal, analysts said.
Uncertainty in stock markets across the world and elevated geopolitical tensions have continued to support the safe-haven appeal of both gold and silver.
Gold climbed to a new record high of $3,066 per ounce on COMEX earlier on Monday.
Prices had gained after the US Federal Reserve’s meeting last week.
“US rate cut expectations rose slightly after the meeting, which underpinned gold’s general strength but failed to provide any fresh impetus,” Thu Lan Nguyen, head of commodity research at Commerzbank AG, said in a report.
The daily moving average convergence and divergence is still high, even though gold is not as overbought as it was in mid-February, according to Trade Nation’s senior market analyst David Morrison.
“That’s not to imply that the top is in for gold, although it could be” Morrison said.
But it does increase the possibility that it may need a bigger pullback, and more of a test of $3,000, before it is ready to resume its rally.
Market’s dovish interpretation of Fed’s move
The optimism over US Fed’s rate cuts faded a bit after the initial rise in gold prices, following the meeting’s outcome last week.
“The reason for the market’s dovish interpretation may have been that Fed Chairman Powell indicated that the central bank would look through the price-driving effect of US tariffs for the time being, referring to the market-based long-term interest rate expectations still being anchored,” Nguyen said.
“However, this does not mean that this will ultimately be the case.”
Initially, the Fed viewed the US 2021-2022 inflation shock as transitory, but the sharp price increases that followed required them to implement aggressive countermeasures.
Nguyen noted:
If a similar scenario were to materialise, it would be bad news for gold.
Experience also shows that the price correction in gold, which followed a sharp increase in US interest rates, did not result in a sustained period of price weakness.
The growing demand for gold as a haven, particularly due to geopolitical tensions, is likely the cause of this.
“As long as this is the case, the downside potential for gold is likely to remain limited,” Nguyen added.
Gold prices and US tariffs
After a brief pause in gold’s rally last week, prices have started to rise again.
This is primarily due to the looming threat of the US tariffs, which is expected to provide a tailwind to global financial markets.
Markets were relieved by news that the Trump administration will ease off on the broad scope of tariffs planned for April 2.
Instead of the initially planned tariffs, President Trump will reportedly seek more specifically targeted tariffs aimed at particular sectors in certain countries or regions.
“This helps ease the fear of broad reciprocal tariffs,” Filip Lagaart, editor at FXstreet, said.
“The softer comments on tariffs will mean a bit less tailwind for Bullion.”
FXstreet expects some selling pressure on gold, but the tailwind from tariffs will not fade completely.
Lagaart said:
Tariffs are still to come, and even if they are targeted and per sector, it could still severely impact markets and certain countries as long the full-scale scope is not yet communicated.
Shipments to Asia subdued, US exports rise
Last week, the Swiss customs authority released data on gold exports for February.
This data gives insight into the shifts in gold demand across different regions.
The sharp increase in gold prices has led to significantly weaker gold shipments to Asia.
For the second consecutive month, gold exports to China have been negligible, and exports to Hong Kong, a major import hub for China, have also dropped to near zero.
India received only 1.3 tons during the last month, while combined Swiss gold exports to China, Hong Kong, and India surpassed 100 tons in February 2024.
“The full stop indicates very weak demand for gold in the most important Asian demand countries,” Carsten Fritsch, commodity analyst at Commerzbank said.
The situation is quite different on the other side of the world.
In February, gold exports from Switzerland to the US were 147.4 tons, only surpassed by the record 193 tons in January.
The renewed, dramatic increase in Comex gold inventories is the likely cause of this, according to Fritsch.
Furthermore, World Gold Council data reveals that US gold exchange-traded funds experienced substantial net inflows in February.
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