Gold prices attracted safe-haven inflows for the third consecutive day amid rising trade tensions.
Fed rate cut bets weighed on the dollar while also providing support for non-yielding gold.
The overbought condition on the daily chart now presents some cautious warnings for bullish traders.
Gold prices (XAU/USD) attracted strong follow-through buying for the third consecutive day, climbing above $3,100 to hit a new all-time high during the Asian session on Monday. Concerns over the reciprocal tariffs that US President Donald Trump will announce on Wednesday and their impact on the global economy continue to weigh on investor sentiment. In addition to this, ongoing geopolitical risks drove safe-haven flows to precious metals and remained supportive of this positive move.
Meanwhile, the U.S. dollar (USD) remained sold for the third day in a row, driven by expectations of rate cuts, as the market expects the Federal Reserve to resume its rate-cutting cycle soon, against the backdrop of a tariff-driven slowdown in the U.S. economy. This overshadowed Friday's data pointing to signs of rising U.S. inflation and became another factor supporting non-yielding gold prices. However, gold bulls may pause due to overbought conditions and need to be positioned carefully for further gains.
U.S. President Donald Trump shocked the market last week by imposing a 25% tariff on all non-U.S. cars and light trucks, with the so-called reciprocal tariffs expected to take effect on April 2. In addition, the Wall Street Journal reported on Sunday that the Trump administration is considering raising trade tariffs on a wider range of countries, pushing safe-haven gold prices to a new high in Asian trading on Monday.
On Sunday, Trump said he was very angry with Russian President Vladimir Putin and threatened to impose huge tariffs on Russian oil and possibly bomb Iran. Trump also raged at Ukrainian President Vladimir Zelensky and warned of major problems if he pulled out of a key rare earth minerals deal. This further weighed on investor sentiment and fueled global risk aversion.
Meanwhile, U.S. data released on Friday showed that the personal consumption expenditures (PCE) price index rose 0.3% in February and 2.5% year-on-year - in line with market expectations. However, the core measure, which excludes volatile food and energy prices, showed a 0.4% increase for the month. This was the largest monthly increase since January 2024, bringing the 12-month inflation rate to 2.8% in the reporting month.
Additional data showed that consumer spending accelerated to 0.4% growth after a downwardly revised 0.3% decline in January, while personal income rose 0.8% in the reporting month. Additionally, a University of Michigan survey showed that consumers' 12-month inflation expectations surged to their highest level in nearly 2-and-a-half years in March, further favoring the precious metal as a hedge against rising prices.
This, coupled with persistent concerns about slowing U.S. economic growth, fueled fears of stagflation, pushing the dollar lower for a third straight day and further supporting the gold/USD pair. The commodity showed less reaction to China's official Purchasing Managers' Index (PMI), with data showing that the manufacturing PMI rose slightly to 50.5 in March, while the non-manufacturing PMI jumped to 50.8.
Traders are now looking forward to important U.S. macro data releases this week, especially the closely watched non-farm payrolls (NFP) report on Friday. Meanwhile, overbought conditions could discourage bulls from making new bets and limit gold's gains. However, the fundamental backdrop suggests that the path of least resistance for the commodity remains to the upside.
From a technical perspective, Friday’s sustained breakout above the previous all-time high (around the $3057-3058 area) is seen as a new trigger for bullish traders. Nonetheless, the Relative Strength Index (RSI) on the daily chart has remained above 70 for the third consecutive day, pointing to overbought conditions. Therefore, it would be wise to wait for some short-term consolidation or a modest pullback before positioning for a continuation of the strong uptrend of the past three months or so.
Meanwhile, any pullback below the Asian session low (around the $3076 area) now seems to find considerable support near the aforementioned resistance breakout point. Next up is the $3,036-3,035 support zone, below which gold could accelerate its fall back to retest the psychological $3,000 mark. The latter should serve as a key turning point that, if decisively breached, could tip the short-term bias in favor of bearish traders and pave the way for deeper losses.
Gold has played a key role in human history as it is widely used as a store of value and medium of exchange. Currently, in addition to its lustre and use in jewellery, gold is widely viewed as a safe haven asset, meaning it is considered a good investment in turbulent times. Gold is also widely viewed as a hedge against inflation and currency debasement as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. To support their currencies during turbulent times, central banks tend to diversify their reserves and buy gold to improve perceptions of economic and monetary strength. High gold reserves can be a source of confidence in a country's solvency. According to the World Gold Council, central banks added 1,136 tons of gold reserves in 2022, worth about $70 billion. This is the highest annual purchase on record. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold is negatively correlated with the U.S. dollar and U.S. Treasuries, both of which are major reserve assets and safe havens. Gold tends to rise when the dollar depreciates, allowing investors and central banks to diversify their assets during turbulent times. Gold is also negatively correlated with risky assets. Stock market rebounds tend to push gold prices lower, while sell-offs in riskier markets tend to benefit gold.
Prices can move due to a variety of factors. Geopolitical instability or fears of a deep recession could quickly push gold prices higher due to its safe-haven status. As a low-yielding asset, gold tends to rise as interest rates fall, while higher funding costs usually weigh on gold. Still, since the asset is priced in U.S. dollars (XAU/USD), most moves depend on the performance of the U.S. dollar (USD). A strong dollar tends to control gold prices, while a weak dollar can push gold prices higher.