Gold prices have recently climbed above $3,400, reaching a five-week high during European trading hours. This rise occurs amid ongoing global trade tensions, even with the US announcing a trade agreement with Japan that includes a 15% tariff on imports. Concerns about global trade continue, particularly between the US and EU. Reports suggest that the US President might raise tariffs on European imports, which could lead to retaliation from the EU.

The US Dollar’s Influence on Gold

The value of the US Dollar affects gold’s attractiveness as a safe-haven asset. Currently, the Dollar is weaker, with the Dollar Index around 97.40, making gold a more appealing buy. Technical indicators show possible fluctuations in gold prices. The price is close to breaking out of a Symmetrical Triangle pattern, with support at the 20-day EMA of $3,358. A Relative Strength Index above 60.00 hints at possible bullish momentum. If gold exceeds $3,500, it may encounter resistance at $3,550 and $3,600, while support could be found around $3,200. Gold is a popular safe-haven asset and a store of value. Central banks, especially those from emerging economies, have been major buyers, significantly increasing their reserves in 2022.

Geopolitical and Economic Factors

Gold prices are affected by geopolitical instability, interest rates, and currency changes. It often moves in opposition to the US Dollar and stock markets. We recommend that derivative traders pay attention to gold’s recent strength, which saw it hit record highs above $2,400 per ounce. This positive trend continues despite the new US-Japan trade agreement, as broader geopolitical risks keep investors cautious. The current conditions suggest that call options or long futures positions might be beneficial. Continuing trade conflicts, especially with China, significantly boost gold’s safe-haven demand. The US President’s recent decision to impose tariffs of up to 100% on Chinese electric vehicles is a notable escalation that could lead to retaliation. We view this instability as a key factor supporting higher gold prices in the weeks ahead. The weakened US Dollar, which recently dropped from over 106 in April to around 104.5, acts as a strong advantage for gold. This makes gold more affordable for those using other currencies, potentially increasing both physical and investment demand. We are closely monitoring the Federal Reserve’s signals on interest rates, as any dovish shift could weaken the Dollar further. From a technical perspective, gold’s price is stabilizing after its recent rise, with significant support near the 50-day moving average around $2,320. The Relative Strength Index remains above 50, indicating that buying momentum is still strong. A significant break above recent highs could lead to reaching the psychological $2,500 level. A major factor in this market is the aggressive buying by central banks. The World Gold Council reported a record start to the year, with central banks adding a net 290 tonnes to global official reserves in the first quarter of 2024. This ongoing demand creates a solid price floor and limits downside risk for traders. Historically, gold performs well during periods of geopolitical tension and when major central banks lower interest rates. We expect this trend to continue, suggesting traders should be ready for volatility while maintaining a bullish outlook. Any dips toward key support levels should be seen as potential buying opportunities. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now