Gold prices are attracting buyers due to ongoing trade uncertainties. This week’s focus is on trade talks between the US and EU. There are worries about the Federal Reserve’s ability to operate independently, especially with US tariffs on EU exports looming near an August deadline. The US Treasury Secretary has raised concerns about the Federal Reserve’s independence due to its involvement in areas outside monetary policy, suggesting a review. Speculation is growing about potential repercussions for Fed Chair Powell following criticism from US leaders. Meanwhile, the European Central Bank is likely to keep interest rates steady as everyone watches the US Fed’s upcoming decision.

US Dollar’s Effect on Gold

The US Dollar Index is currently around 97.90, down over 0.50% recently, which affects the price of gold traded in dollars. Gold is priced at about $3,390 per troy ounce, showing signs of a bullish trend. Resistance levels are set at $3,452 and $3,500, while immediate support is at $3,358. Gold is key as a store of value and is considered a safe-haven asset. Central banks increase their gold reserves for economic stability, with a record purchase of 1,136 tonnes in 2022. Gold’s price generally moves opposite to the US Dollar and Treasuries, influenced by global stability and economic events. Given the ongoing trade uncertainties and the focus on US-EU negotiations, we believe derivative traders should have a positive view of gold. The political pressure on the Federal Reserve’s policies further supports this outlook. These factors create a favorable environment for safe-haven assets.

Federal Reserve Policy and Gold Outlook

Concerns about the Fed’s independence, especially regarding its chair, point to potential policy unpredictability. The CME FedWatch Tool shows a more than 99% chance the Fed will keep interest rates steady at its June meeting, indicating market caution. This hesitation signals a bullish opportunity for non-yielding assets. The US Dollar Index, currently at about 104.5, is crucial to monitor. A weaker dollar makes gold more affordable for those holding other currencies, which could boost demand. With gold trading near $2,350 per troy ounce, we are looking for a rise above the key resistance level of $2,400. Gold’s status as a store of value is strengthened by significant institutional purchases. After record buying in 2022, central banks accumulated another 1,037 tonnes in 2023 and an additional 290 tonnes in the first quarter of 2024. This steady demand from official sources provides a strong price support. Historically, gold has performed well during times of economic uncertainty and geopolitical tension, as seen during the 2008 financial crisis and the 2020 pandemic lockdowns. Therefore, we suggest that buying call options on gold or gold-backed ETFs is a sensible strategy for gaining potential price exposure while managing risk. Create your live VT Markets account and start trading now.

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