Gold Price Stability Amid Bullish Exhaustion and Risk Sentiment Shift

Gold prices have stabilised after dipping post-peak, buoyed by optimism over US-China tariffs and Federal Reserve policy. Technical indicators suggest potential exhaustion in bullish trends but may find support near Fibonacci levels. Central banks are increasing gold reserves amid economic uncertainty, suggesting continued demand for this precious metal as a hedge against inflation and currency depreciation.

Gold price (XAU/USD) showed resilience in Asia on Wednesday, drawing interest from dip buyers after retreating from a recent $3,500 peak. The recovery of the US Dollar from a multi-year low was hindered by declining confidence in the US economy, largely due to fluctuating tariff statements from President Donald Trump. Additionally, speculation regarding further policy easing by the Federal Reserve has led to some US Dollar selling, enhancing demand for gold as a non-yielding asset.

Furthermore, hints from Trump administration officials about a possible resolution to the ongoing tariffs with China have generated optimism regarding a trade agreement. Trump also eased concerns regarding Federal Reserve Chair Jerome Powell’s position. Moreover, Russian President Vladimir Putin expressed a willingness to talk directly with Ukrainian President Volodymyr Zelenskyy, which has spurred hopes for a ceasefire, boosting risk appetite and leading to a recovery in global equity markets.

Technically, gold has settled below the 23.6% Fibonacci retracement level corresponding to its recent rise from the mid-$2,900s swing low. The absence of further buying signals may indicate potential bullish exhaustion, suggesting a risk for losses ahead. However, oscillators in the daily chart remain in positive territory, indicating caution for those considering bearish moves. A downward movement past the Asian session low near $3,315 may find support around the 38.2% Fibonacci level at $3,289, with a significant break below this figure likely to lead to greater corrective declines.

On the upside, the area around $3,370 (23.6% Fibonacci level) serves as an immediate resistance before reaching $3,400. Additional buying momentum could drive prices to horizontal resistance at $3,424-3,425, with bulls aiming to breach the psychological threshold of $3,500. Sustained strength beyond this point may signal a continuation of the established upward trend seen over the past four months.

Historically, gold has functioned as a fundamental store of value and medium of exchange. Besides its appeal in jewelry, it has become a safe-haven asset during times of instability. Gold is considered a hedge against inflation and currency depreciation, as its value is not tied to any issuer or government.

Central banks are the primary holders of gold. To stabilize their currencies during unpredictable economic climates, central banks diversify their reserves with gold, enhancing perceived economic strength. In 2022, central banks added 1,136 tonnes of gold to their reserves, valued at approximately $70 billion, marking the highest annual purchases on record. Nations such as China, India, and Turkey are rapidly increasing their gold holdings.

Gold demonstrates an inverse relationship with the US Dollar and US Treasuries, both key reserve and safe-haven assets. As the Dollar weakens, the price of gold typically rises, allowing for better asset diversification during economic turmoil. Conversely, a rally in stock markets tends to suppress gold prices, while declines in risk assets favour the metal.

Various factors can influence gold prices, including geopolitical tensions and recession fears, which can swiftly elevate gold’s status as a safe haven. As a yield-less asset, gold tends to appreciate when interest rates are low, while higher rates can negatively impact its price. However, the primary driver for price movements remains the behaviour of the US Dollar, as gold is valued in dollars (XAU/USD). A robust Dollar generally suppresses gold prices, whereas a weaker Dollar may lead to significant increases in its value.