- Gold thrives amidst trade war tensions, as uncertainty drives demand for safe-haven assets.
- US-China trade issues keep markets volatile, sustaining gold’s appeal amid economic uncertainty.
- Overbought signals suggest potential pullback, but gold remains strong with key support levels intact.
- Looking for actionable trade ideas to navigate the current market volatility? Subscribe here to unlock access to InvestingPro’s AI-selected stock winners.
Gold’s perennial role as a safe-haven asset came to the fore once again last week, as mounting trade war anxieties kept investors on edge. Fears of a global economic fallout precipitated by the Trump administration’s erratic trade policies sent the precious metal to repeated new all-time highs, as the metal ended the week some 6.5% higher.
The ever-shifting stance from Washington—punctuated by U-turns, delays, and unpredictability—leaves businesses wary of investing or hiring, creating the perfect storm of uncertainty in which gold tends to thrive.
While there’s optimism that Washington is granting tariff exemptions on a number of tech goods made using Chinese materials — most notably smartphones- Donald Trump warned that “nobody is getting off the hook for unfair trade balances,” fuelling speculation that further twists may be yet to come.
Against this backdrop, it is difficult to see a major slide in haven demand for gold, even if the precious metal is easing back at the start of this week and getting quite stretched from a technical standpoint.
Risk Assets Bounce Back as US Softens Stance on Chinese Tech Tariffs
The climbdown from Washington — granting a temporary exemption on a swathe of popular electronics from the 125% China-specific tariffs and a global 10% flat rate — is, for now, just that: temporary. The move forms part of a broader strategy to roll out a more targeted tariff structure for the tech sector. On Sunday, however, there was a hint of pragmatism in the president’s tone.
While doubling down on the long-term tariff framework, Trump signalled he’s open to discussions with firms over how the forthcoming sectoral levies — covering semiconductors and the devices that depend on them, such as iPhones and tablets — might take shape. “We’ll be discussing it, but we’ll also talk to companies,” he remarked. “You have to show a certain flexibility. Nobody should be so rigid.”
That said, the reprieve may prove fleeting. Trump has promised an update later today on his administration’s stance regarding semiconductor tariffs — a space already rife with geopolitical tension. Officials in Beijing, for their part, have urged the US to go further and "completely cancel" the duties — a plea that’s unlikely to find much traction in an election year.
Unless trade deals with China and the rest of the world are agreed upon soon, the unresolved standoff will be casting a long shadow for all risk assets. While President Trump’s backtracking on reciprocal tariffs may be viewed as a step in the right direction, it does little to reassure markets without corresponding movement on the China front.
For gold investors, the strategy has been straightforward: buy the dips and seek shelter in the safe-haven glow of bullion. But with prices already hovering at lofty levels, the question now is whether this resilience can hold. Any significant improvement in risk sentiment—particularly stemming from a thaw in US-China relations—could see gold come under short-term pressure.
Gold Technical Analysis
From a technical perspective, gold’s bullish trend remains firm, punctuated only by the occasional shallow pullback. For trend-following traders, the path of least resistance has clearly been upward. However, even the strongest trends need to pause for breath, and signs are emerging that gold may be approaching that point again.
The Relative Strength Index (RSI) on the daily chart is now back to 70.0 following a sharp 3-day rally in gold prices. While the daily gold RSI has been even more overbought previously, it is still worth keeping an eye on prices especially as the long-term charts remain at extreme levels.
Indeed, the RSI on the monthly chart has been firmly planted above the overbought threshold of 70 since April 2024, and more recently nearing the 85.0 mark—a level that previously preceded corrections. The last time we saw such elevated readings was in October, which was followed by a two-month cooling off period. Before that, the pandemic-era highs and the 2011 bull market top were both accompanied by similarly extreme RSI readings.
Historically, such signals have tended to precede either lengthy consolidations or sharper corrections.
At present, the weekly RSI remains just shy of the same overbought territory, hovering around 75. While this doesn’t offer a clear sell signal in itself, it does suggest the risk of a pullback or sideways consolidation is rising. Should the price action cooperate and form a reversal pattern, it would be the first technical sign to consider a more cautious stance.
Another area warranting attention is gold’s distance from its longer-term moving averages. Prices are currently trading nearly $1,100 above the 200-week moving average. This places gold almost 55% above its long-term mean—a notable feat, and a potential red flag for overextension.
That said, with the trend still undeniably strong, I’d view any dip towards short-term support levels as buying opportunities until there is a clear top pattern in place and we start making lower lows and lower highs.
Watching Key Support Levels
The first line of support now comes in at $3,167, marking the high from the first week of April. Below that $3,100 is the next support to watch, followed by the area between $3,000 to $3,022, marking the convergence of the short-term bullish trend line with support (and psychologically important level of $3K).
The line in the sand for me now is at $2,956, last week’s low. A potential break below that could pave the way for a deeper retracement towards the long-term support area around $2790.
In short, while the momentum remains with the bulls, prudence is advised. Conditions appear ripe for either a breather or a modest retracement, before gold potentially resumes its upward march.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.