Gold price (XAU/USD) remains confined in a narrow trading band near the all-time peak through the first half of the European session on Friday and seems poised to register strong gains for the second straight week. Investors remain worried about the potential economic fallout from US President Donald Trump's aggressive trade policies. This, along with bets that the Federal Reserve (Fed) will cut interest rates several times in 2025, turn out to be key factors acting as a tailwind for the non-yielding yellow metal.
The XAU/USD bulls, however, refrain from placing fresh bets amid a positive risk tone, bolstered by positive comments out of the US-Canada trade talks and reports that there will be enough Democratic votes to avoid a US government shutdown. Apart from this, a further US Dollar (USD) recovery from a multi-month low touched on Tuesday contributes to capping the upside for the Gold price. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the commodity remains to the upside.
From a technical perspective, this week's breakout through the $2,928-2,930 horizontal resistance and a subsequent move beyond the previous record high, around the $2,956 region, could be seen as a fresh trigger for bulls. That said, the Relative Strength Index (RSI) on the daily chart remains close to the overbought territory and makes it prudent to wait for some near-term consolidation or a modest pullback before the next leg up. The broader setup, however, suggests that the path of least resistance for the Gold price remains to the upside and supports prospects for an extension of a nearly three-month-old well-established uptrend.
In the meantime, any meaningful corrective slide is more likely to attract fresh buyers near the $2,956 area, below which the Gold price could drop to the $2,930-2,928 horizontal resistance breakpoint, now turned support. The latter should act as a key pivotal point and a convincing break below might prompt some technical selling, which should pave the way for deeper losses. The XAU/USD pair might then accelerate the fall towards the $2,900 round figure en route to the $2,880 region, or the weekly low touched on Tuesday.
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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