Gold is trading in a narrow range due to economic data, easing trade tensions, and a weak US Dollar. Currently, Gold is priced around $3,310 per ounce, down from a high of $3,345. A new US–EU trade deal has reduced tariff risks by lowering most EU goods tariffs to 15%. This agreement enhances US access to EU markets in digital services, agriculture, and clean energy, similar to the recent US–Japan trade deal.

Impact of a Strengthening US Dollar

The US Dollar has strengthened because of new trade deals before the FOMC meeting, leading to less demand for safe havens like Gold. The agreement promotes cooperation on key minerals, allowing EU exporters to benefit from IRA incentives in the US. Gold continues to trade close to $3,340 as optimism about global trade stability grows, decreasing safe-haven demand. A strong US labor market eases pressure on the Federal Reserve to cut interest rates, supporting the Dollar and resulting in higher yields, which typically is negative for Gold. The FedWatch Tool shows a 59.5% chance of a rate cut in September, with a 38.9% chance of rates remaining the same. Ongoing trade talks with China are crucial; failure could lead to increased tariffs and inflation. Gold’s technical chart displays a symmetrical triangle pattern, indicating potential breakout opportunities. Immediate support is at $3,350, while resistance is around the 23.6% Fibonacci retracement level near $3,372, highlighting important price points for future movements. Though historically a store of value, Gold serves as a hedge against inflation and falling currencies. Its inverse relationship with the US Dollar and US Treasuries means it often rises when the Dollar weakens and during global instability.

Trends in Central Bank Purchasing

Central banks have become major Gold buyers, adding 1,136 tonnes worth about $70 billion to their reserves in 2022. This marks the highest yearly purchase since records began, showing Gold’s ongoing role in economic strategies. Gold is currently trading around $2,330 per ounce, caught between mixed economic signals and a weak US Dollar. Recent strength in the Dollar, aided by the US-EU trade agreement, is limiting potential gains. This has reduced interest in Gold as a safe haven for now. A strong US labor market added an unexpected 272,000 jobs in May, lowering the urgency for the central bank to cut interest rates. Consequently, the likelihood of a September rate cut has dropped below 50%, according to the latest FedWatch data. This supportive outlook for higher interest rates traditionally affects Gold negatively. From a technical perspective, we are observing a consolidation pattern that hints at an upcoming significant move. Immediate support for Gold is near $2,300, and breaking below this level may lead to further declines. Resistance is forming around $2,375, which is crucial to break to maintain the prior uptrend. Despite short-term pressures, strong demand from global central banks provides a solid foundation for Gold prices. These institutions added 290 tonnes to their reserves in the first quarter of 2024, continuing a trend of historic buying. This strategic accumulation highlights Gold’s role as a key reserve asset against currency depreciation. Given these mixed signals, traders should consider strategies that could benefit from potential volatility. Buying straddles or strangles allows traders to profit from significant price moves in either direction, which seems likely given the current tension between negative economic data and strong institutional demand. This approach protects against the uncertainty of what may drive the next major trend. Create your live VT Markets account and start trading now.

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