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A potent cocktail of trade policy anxieties and growing recession fears sent gold prices reeling this week, with the precious metal shedding over 3% as the US dollar surged. The XAU/USD pair closed Friday at $2,845, a significant drop from its daily peak of $2,885, and a far cry from the highs seen earlier in the week.
The catalyst for this sharp decline was multifaceted. President Donald Trump’s announcement of impending 25% tariffs on Mexican and Canadian goods, slated for implementation next week, rattled markets and ignited concerns about escalating trade tensions. This, coupled with existing worries about potential tariffs on Chinese imports, fueled a flight to the perceived safety of the US dollar, which soared to a ten-day high of 107.66.
Adding to the market jitters was the release of the Federal Reserve’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index. While the data indicated inflation continued its gradual descent toward the Fed’s 2% target, it also amplified expectations of imminent rate cuts. Market participants, according to Prime Market Terminal, now anticipate the Fed to slash interest rates by 70 basis points in 2025, with the first cut projected for June.
Furthermore, the Atlanta Fed’s GDPNow estimate painted a concerning picture of the US economy, revising its Q1 2025 growth forecast from a 2.3% expansion to a contraction of 1.5%. This stark revision, coupled with the inflation data, deepened recessionary fears and further bolstered the dollar’s strength. In response, the 10-year US Treasury note yield dipped, while US real yields, measured by the yield on 10-year Treasury Inflation-Protected Securities (TIPS), also edged lower.
While Fed speakers, like Cleveland Fed’s Beth Hammack, downplayed the possibility of a rate hike, the uncertainty surrounding the impact of trade policies on the economy and monetary policy remained a significant market driver. The core PCE data, showing a 0.3% month-over-month increase and a 2.6% year-over-year rise, largely aligned with expectations, but did little to alleviate the prevailing market anxiety.
From a technical perspective, gold’s back-to-back bearish candles signaled profit-taking and portfolio adjustments as the month drew to a close. The break below the $2,900 level triggered a further decline toward $2,832.
A daily close above $2,850 would offer some hope to buyers, with $2,900 and the year-to-date high of $2,956 acting as key resistance levels. Conversely, support levels lie at $2,800, followed by the October 31 daily peak at $2,790, and the 50-day Simple Moving Average (SMA) at $2,770. Despite the recent downturn, Goldman Sachs’s bullish long-term outlook, projecting gold prices to reach $3,100 by the end of 2025, continues to linger in the background.
