Gold to face short-term pressure amid risk aversion and profit booking

Gold: Risk aversion due to intensifying trade war leading to long liquidation

 

Performance:

 

On April 7, spot gold fell nearly 4 per cent from the record high of $3,167.80 it made on April 3 in the wake of the US President Trump's reciprocal tariffs announced on April 2; it slumped to $2,956.71, lowest since March 13.

 

On April 8, the yellow metal snapped its three-day losing streak to rise to $3,022.73 before it gave back all its gains to settle steady at $2,981 as Trump announced additional 50 per cent tariffs on China starting from April 9. Total tariff on China now stands at a humongous 104 per cent.

 

Tariff developments: 

 

President Trump has planned negotiation with interested individual countries, with Japan being given priority to reach deals that may mutually reduce tariffs. US Treasury Secretary Scott Bessent said that there is a potential for mutually beneficial deals with major US trading partners. He added that nature of agreements could be different than standard trade deals, incorporating projects like energy deal in Alaska, but not all the new tariffs may be rolled back. Trump will have maximum negotiating leverage as reciprocal tariffs will come into effect from April 9.

 

It is to be noted that there is a possibility of a significant energy deal in Alaska where Japan, South Korea and Taiwan could take a lot of the offtake. 

 

Stephen Miran, White House Council of Economic Advisers Chair, said that defense could also be a component of new deals. As per Commerce Secretary Lutnick, analysis for the reciprocal tariffs came from the Council Economic Advisers.

 

Risk assets recovered sharply on Tuesday after falling sharply for the last three days; however, assets came under renewed intense downside pressure on talks of 104 per cent tariffs on China.

 

US data:

 

Consumer credit (February) came in lower by $0.81 billion; thus, falling short of the forecast of $15 billion while the prior data was revised lower from $18.04 billion to $8.90 billion. The decline is driven by a sharp pullback in credit card balances and decline in motor vehicle and other revolving loans as high borrowing costs and elevated inflation discourage consumers. NIFB small business optimism (March) at 97.4, lowest since October, as it trailed the median estimate of 99. 

 

Upcoming data:

 

Investors look forward to FOMC minutes (March 19 meeting) to be released on April 9. US CPI (March) is slated to be released on April 10.

 

ETF:

 

Total known global gold ETF holdings stood at 88.018MOz as on April 7, highest since September 2023. ETF holdings have been up for eleven consecutive weeks and are up around 6 per cent YTD.

 

Gold COMEX Inventory:

 

Gold COMEX inventory, as on April 7, stood at 45.064MOz, a record high, on delivery demand.

 

US Dollar Index and yields:

 

The US Dollar Index fell to 101.26 on April 3 as Trump unveiled reciprocal tariffs, which amounts to a decline of around 9 per cent from the cyclical peak seen in January. However, since then, the Index has recovered around 1.50 per cent in line with the US yields.

 

US bonds rallied quite sharply on growth concerns stoking safe haven demand due to much severe than expected reciprocal tariffs. Ten-year yields fell to 3.86 per cent on April 7, lowest since October 4. However, since then, yields have recovered sharply as investors went in 'sell everything' mode to raise cash to meet margin calls as margin calls rose the most since Covid days. Surging inflation expectations may also have played a part in pushing yields higher. On April 8, ten-year US yields closed with a gain of 1.72 per cent at 4.27 per cent, highest since March 27. The two-year US yields fell to 3.43 per cent on April 7, lowest since September 2022. Two-year yields closed 1.45 per cent lower at 3.73 per cent on April 8 as traders boosted wager on aggressive rate cuts by the Fed.

 

The US Dollar Index at 102.82 was down 0.48 per cent on Tuesday.

 

Central banks’ gold buying:

 

The People’s Bank of China bought another three tonnes of gold in March, the fifth consecutive month the central bank has increased its gold holdings after taking a six-month break last year. China’s central bank has purchased 13 tonnes of gold so far this year, bringing its total reserves to 2,292 tonnes. Poland’s central bank bought 16 tonnes of gold last month, which took its YTD tally to 49 tonnes. Uzbekistan sold 11 tonnes of gold last month to take advantage of high prices though.

 

Gold in London Vaults:

 

As at end March 2025, the amount of gold held in London vaults was 8,488 tonnes, up 0.14 per cent m-o-m, which shows that gold is moving from Bank of England’s vaults to London’s commercial vaults as amount of gold in Bank of England’s vault in March declined at the same pace as in February.

 

Outlook:

 

Intensifying trade war, isolationist policies of US, healthy ETF inflows, deteriorating global economic outlook and buying by central banks are quite positive for the metal. However, the yellow metal is suffering due to extreme risk aversion as investors sell their assets to meet margin calls. Profit booking and some tentative selling are also weighing on the metal. Trump imposing no tariffs on gold and silver is yet another negative development for the bullion as trade flow of gold may reverse leading to outflow from US back to London that may suppress spot prices.

 

In short term, poor risk sentiments may send the metal lower, though these declines offer excellent opportunity for building long positions for medium to long term. Support is at $2947 (MCX June contract ₹86,300) /$2900 (₹85,000). Resistance is at $3050 (₹89,300)/$3100 (₹90,800). MCX rates calculated at USDINR rate of 86.48.  

(Disclaimer: Praveen Singh is an associate VP of fundamental currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.)