Gold prices declined in European trading on Wednesday, marking their first loss in four sessions. The pullback comes after the metal hit a five-week high earlier in Asian trading, as profit-taking and improved market risk appetite weighed on the precious metal following a major trade agreement between the US and Japan.
The US dollar also began rebounding from a two-week low, as recession concerns eased ahead of further trade updates expected before the August 1 deadline.
The Price
Gold prices dropped 0.45% to $3,416.52 an ounce, down from the session’s open at $3,431.44, after reaching an earlier high of $3,438.94 — the highest since June 16.
On Tuesday, gold settled with a 1.0% gain, its third consecutive daily increase, supported by lower US yields and a weaker dollar.
US Dollar
The US Dollar Index rose about 0.2% on Wednesday, attempting to recover from a two-week low of 97.31. It’s on track for its first gain in four sessions, reflecting a broad-based rebound in the greenback.
Beyond bargain buying, the dollar’s strength was boosted by a significant US-Japan trade deal that helped ease recession fears in the world’s largest economy.
Trade Developments
President Donald Trump announced on Tuesday a “massive” trade agreement with Japan, which includes reciprocal 15% tariffs on Japanese exports to the US and a reduction in auto tariffs from 25% to 15%.
Treasury Secretary Scott Besant also stated that US and Chinese officials would meet next week in Stockholm to discuss a possible extension of the trade negotiation deadline to August 12.
US Interest Rates
Trump continued his attacks on Fed Chair Jerome Powell, calling him a “fool” for keeping interest rates “too high” and claimed Powell would step down in eight months.
According to the CME FedWatch Tool, there’s currently a 5% chance of a 25-basis-point rate cut at the July meeting, and a 95% probability of rates remaining unchanged.
For September, markets are pricing in a 59% chance of a rate cut and a 41% chance of no change.
The upcoming Fed policy meeting next week is expected to offer more clarity on the rate path for the remainder of the year.
Gold Outlook
Tim Waterer, Chief Market Analyst at KCM Trade, said more trade agreements before August 1 could boost overall risk appetite and reduce demand for gold.
He added that if the US dollar remains under pressure, gold has a realistic chance of retesting the $3,500 level in the near term.
Matt Simpson of City Index noted that current conditions suggest low liquidity, and a decline in political pressure on Powell could reduce volatility, potentially giving bears an opportunity to target moves below $3,500.
SPDR Gold Trust
Holdings in the SPDR Gold Trust — the world’s largest gold-backed ETF — rose by 7.74 metric tons yesterday, marking the biggest daily increase since April 10. Total holdings now stand at 954.80 metric tons, the highest since June 27.
