Gold Drops on Investors' Profit-Taking
The gold (XAU/USD) price plunged by 1.22% on Tuesday as traders took profit after XAU/USD hit an all-time high during the previous session.
You are seeing profit-taking as well as people looking to get to the sidelines and to re-establish positions at a lower price', said Bob Haberkorn, senior market strategist at RJO Futures. Indeed, gold has become technically overbought as safe-haven demand, driven by escalating geopolitical tensions and economic uncertainties, pushed the prices to record highs. The rapid XAU/USD growth could have created a situation where the market's enthusiasm exceeded underlying fundamental support, leading to a temporary price bubble.
At the same time, the prospect of one or two interest rate reductions by the Federal Reserve (Fed) later this year continues to offer a degree of positive, albeit limited, support for gold prices.
"I still think that there's enough uncertainty out there associated with tariffs (and) trade more generally... dips are going to continue to be viewed as buying opportunities", said Peter Grant, vice president and senior metals strategist at Zaner Metals.
XAU/USD was relatively unchanged during the Asian and early European trading sessions. As the market consolidates, investors closely monitor whether the recent pullback is a correction within a larger uptrend or a sign of a more significant reversal. The ability of gold to sustain its price levels will depend on the strength of the safe-haven demand and the changes in global economic and political landscapes. 'Spot gold may retest resistance at $2,957 per ounce, as it has stabilized around support at $2,891', said Reuters analyst Wang Tao.
Weakening US Dollar Pushed Euro Higher
The euro (EUR/USD) gained 0.45% against the US dollar (USD) on Tuesday after a lower-than-expected US Consumer Confidence Index (CCI) report damaged the greenback's appeal.
Soft reading on US consumer sentiment and a drop in US yields weighed on the US Dollar Index (DXY), while optimism for more spending in Germany helped lift the euro. US Conference Board revealed yesterday that CCI recorded its largest fall since August 2021. It came out at just 98.3, well below the expected 102.5.
"The present situation index improved, but consumers are expecting dark skies ahead. Change can be scary, so it’s not surprising that confidence is falling", said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls.
The US economic outlook is now clouded by worries over slowing growth, heightened inflation risks due to upcoming tariffs, and potential labour market disruptions stemming from Elon Musk's government efficiency efforts. Although the market still expects the Federal Reserve (Fed) to deliver only one rate cut this year, the probability of two 25-basis-point reductions has increased lately, putting downward pressure on the greenback.
At the same time, Friedrich Merz, Germany's newly elected Chancellor, dismissed the possibility of immediate changes to Germany's debt rules. He indicated that it was premature to determine if the current parliament could approve a substantial increase in military expenditure. The market interpreted this message as a display of fiscal responsibility, which was seen as favourable for the euro.
EUR/USD was falling during the Asian and early European trading sessions. Today's macroeconomic calendar is relatively uneventful, so the probability of big moves in EUR pairs is low. Still, euro traders should remain vigilant and pay close attention to news and geopolitical developments that might trigger sudden changes in investors' confidence. The news that may affect the euro are Donald Trump's trade tariff plans, Germany’s coalition progress, and developments in Russia-Ukraine peace talks.
British Pound Lacks Reasons to Sustain a Bullish Trend
The British pound (GBP/USD) gained 0.32% on Tuesday as the US dollar (USD) weakened due to a lower-than-expected US Consumer Confidence report.
The disappointing reading on US consumer sentiment and a decline in US Treasury yields weighed on the US Dollar Index (DXY), allowing the pound to gain ground. At the same time, GBP/USD remains below the critically important 1.27000 level, signalling that the market lacks reasons for a sustained bullish move. Indeed, the U.K. economy continues to underperform relative to the US once. Friday's U.K. Purchasing Managers' Indices (PMIs) were largely lower than expected, while yesterday's survey of retailers and wholesalers indicated a drop in sales volume.
Furthermore, the market still expects the Bank of England (BoE) to pursue a dovish monetary policy in 2025. Markets now price in a 34% probability that the U.K. base rate will decline towards 4% by the end of the year. This is a significant factor weighing down on the pound, as it suggests that investors anticipate lower returns on sterling-denominated assets in the near future.
GBP/USD was falling during the Asian and early European trading sessions. Today's macroeconomic calendar is relatively uneventful, but a speech by Swati Dhingra, an external member of the BoE Monetary Policy Committee, may offer some clues regarding the potential monetary policy changes. Dhingra will give a speech at 4:30 p.m. UTC and her remarks may increase volatility in GBP pairs. Key levels to watch are resistance at 1.26700–1.27000 and support at 1.26200–1.26000.