Gold Price Restrained Despite Market Volatility

The crux of the issue for markets is that we don’t yet know how many of the tariffs announced in the last week will still be in place in three- or six-months’ time. Maybe all of them? Maybe only a small amount of them? Maybe the steep reciprocal tariff levels will be walked back for some countries but kept on for others.

And as we don’t yet know what the tariff endgame will look like, judging what the actual economic consequences will is a bit like playing a game of crapshoot.

Therefore, in the meantime markets are left to consider all possibilities (recession, stagflation, recession-avoidance) but with a strong bias towards worst-case scenarios. Particularly with the US and China continuing to play a game of tariff brinkmanship which could create detrimental economic fallout for both.

Gold has been uncharacteristically restrained this week despite the ongoing tariff anxiety and heightened volatility on display across financial markets. Given that gold has the reputation of being a safe haven asset, it could be argued that the precious metal has underperformed during a time when there has been carnage on the markets. Gold has slipped from trading at around the $3130 level on Thursday last week to now be around the $2985 level (as of Wednesday morning).

Why has gold stumbled? In the trading sessions following the reciprocal tariff announcements, there was widespread market panic there was a reluctance to hold any assets given the wild market swings. A case could be made that gold simply got caught up in the broader selling mood of the market. There are also signs that gold positions were closed to cover margin calls experienced for other assets.

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This week, US treasury yields have rebounded which has not helped gold’s cause (as gold is a zero-yielding asset). So, there are various factors at play which have muted the performance of gold. But if the tariff worries continue, it wouldn’t be surprising to see gold rediscover its form and once again start tracking north. Levels to watch include resistance at $3018 and $3046, while support arrives at $2970, $2952, and further down at $2900.

Oil has been a big mover this week, with the price of crude oil down 19% in the last five days. WTI (US) crude slipped below $60 to start the week, with the price seen languishing at $57.50 as of early trading hours on Wednesday. The escalating trade measures between the US and China have posed serious questions regarding the energy demand outlook, as reflected by the slumping oil price. At current price levels, crude is moving precariously close to the break-even point for some oil producers, and in such circumstances OPEC+ may be starting to have second thoughts about their decision to raise output levels last week.

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In FX, after a brief rally on Tuesday the USD is back under pressure, with the DXY (Dollar Index) falling back below the 103 level. Increasing expectations that the Fed may be delivering additional rate cuts this year to counter any adverse economic tariff effects have hindered the USD, while the likes of the yen and Swiss franc continue to benefit from safe haven buying. The USD looks like it will remain on the outer with investors whilst talk of there being up to five Fed rate cuts this year continues to swirl. If the DXY makes another run higher, resistance at 103.50 would need to be overcome, while support awaits at 102.70 and 102.35.

Looking ahead, financial markets will be highly attuned to any progress on the tariff negotiations front. Will upcoming tariff negotiations (such as with Japan, Vietnam etc.) lead to a relief rally? That is one possible scenario given Trump’s dealmaking mantra. But for the moment the White House is playing hardball. Negotiations take time and market patience will be tested. In the absence of any deals this period of market discomfort and uncertainty looks set to continue.

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