Forex Analysis & Reviews: 01.05.2025 - Why Gold Is Falling for the...

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01.05.2025 11:40 AM

Why Gold Is Falling for the Third Consecutive Day

Gold is declining for the third straight day amid signs of potential progress in trade negotiations between the U.S. and several other countries, which is dampening demand for safe-haven assets—even as signs of economic slowdown emerge in major economies. These positive signals reduce the appeal of gold as a reliable safe-haven asset, despite concerning indicators of economic deceleration in the world's leading economies.

Investors, previously worried about the prospects of a global recession, are now looking hopefully at the potential resolution of trade disputes. Expectations of trade deals are pushing them toward higher-risk assets like equities, which weakens demand for gold. However, despite the optimism, concerns remain about the long-term stability of the global economy. Recent data points to a slowdown in the growth of the U.S. economy, which could renew interest in gold as a hedge against economic shocks.

In the short term, gold price dynamics will likely depend on the progress of trade negotiations and macroeconomic statistics. If progress on trade continues, pressure on gold will persist. Conversely, if economic outlooks deteriorate, gold may regain its position as a safe-haven asset.

As of yesterday, gold prices dropped 1.8% after U.S. Trade Representative Donald Trump's office stated that the first tranche of trade deals was close to being announced. Adding to the optimism, China Central Television reported that the U.S. had reached out to Beijing through multiple channels.

Still, gold remains near this year's highs after hitting a record above $3,500 last week. That surge was largely driven by investors seeking safety in gold, as Trump's fast-changing trade policies roiled markets and intensified fears of a global slowdown. Speculative demand in China and purchases by central banks also supported the rally.

As noted earlier, the U.S. economy contracted at the start of the year for the first time since 2022 due to a massive spike in imports ahead of tariff implementation. This prompted traders to ramp up bets on monetary policy easing in the U.S., with four quarter-point rate cuts already priced in by the Federal Reserve for this year to help stave off recession. Lower rates are generally positive for gold prices, as the metal does not yield interest.

Looking ahead, an important U.S. monthly jobs report is due Friday, which is expected to shed more light on the initial economic impact of Trump's trade policies.

As for the current technical picture of gold, buyers need to reclaim the nearest resistance at $3,255. This would allow for a potential move toward $3,296, above which breaking through will be quite challenging. The ultimate target would be the $3,347 level. In the event of a decline, bears will aim to take control at $3,209. If successful, a breakout below this range would deal a serious blow to bullish positions and push gold down to the $3,166 low with a potential slide toward $3,116.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.