Gold Retreats as Trade Tensions Ease

Gold (XAU) dropped over 1% on Tuesday, 22 April, after briefly hitting a record intraday high of $3,500 earlier in the session. The decline was prompted by remarks from US Treasury Secretary Scott Bessent suggesting easing tensions between the US and China. 

Bessent’s comments simultaneously boosted equity markets and lifted the US dollar, offsetting concerns that President Donald Trump might try to dismiss Federal Reserve Chair Jerome Powell. (Source: Reuters)

Gold Price Performance Chart

The daily candlestick chart for gold shows that the price has been accelerating to the upside, pushing above the upper Bollinger band over the past several trading sessions.

Bollinger Bands consist of a middle band (a simple 20-day moving average) with two standard deviations above and below (the upper and lower bands). Bollinger Bands are used to assess price volatility - as the price moves closer to the upper band this indicates an overbought market (prices are rising quickly), as it moves towards the lower band this indicates an oversold market (prices are falling quickly). If a price reaches the upper band, traders may anticipate a potential decline and use the middle and lower bands as a possible downside target.

*Past performance does not indicate future results 

Bessent Calls Trade Tensions Unsustainable

With the onset of tariffs, a major driver for the risk-off tone in markets since Inauguration Day, any hints from US government officials that the tariffs could be reduced or even reversed can trigger an at least temporary risk-on mood in markets.

Markets saw a boost in risk appetite on Tuesday, following comments from US Treasury Secretary Scott Bessent, who described the ongoing trade war with China as “unsustainable” and expressed confidence in a near-term de-escalation. His remarks were echoed by President Trump, who suggested that steep tariffs on Chinese imports could eventually be reduced, but he stressed that any easing would depend on China returning to the negotiating table.

The comments offered a glimmer of hope for progress in US-China trade relations, lifting sentiment across equity markets. On Tuesday, the Dow Jones jumped 1000 points, and both the S&P 500 and Nasdaq gained over 2%.

However, the path to a resolution remains uncertain. China has so far shown little indication of backing down after retaliating against Trump’s 145% tariffs with duties of 125% on US goods. (Source: Investing)

Trump Has “No Intention” of Firing Powell

Gold added to yesterday’s losses in early trading Wednesday, while US index futures pointed to a strong open after President Trump said in response to a journalist’s question about Fed Chair Powell, “No, I have no intention of firing him.”

The uncertainty around Powell’s position as Fed Chair ushered investors into gold as a haven asset. The precious metal touched $3,500.05 per troy ounce before a sharp pullback. Gold has been a standout performer this year, fuelled by growing demand for safety amid falling confidence in the US dollar and rising geopolitical and economic risks.

Trump’s criticism of Powell had contributed to the big gains in gold and steep losses on Wall Street on Monday (21 April), which were eventually erased in the aforementioned relief rally over lessening trade tensions. (Source: CNBC)

Conclusion: Gold Too Far, Too Fast?

Gold’s rapid surge to a record high of $3,500 per oz has been driven by a flight to safety amid trade tensions, concerns over US monetary policy, and weakening confidence in the dollar. However, with the price already down significantly from potentially overbought conditions and signs of easing trade tensions boosting risk appetite, the rally may be overextended in the short term. 

A pullback could be on the cards as traders reassess the balance between risk-off sentiment and improving market confidence. Only time will tell what lies ahead.

*Past performance does not indicate future results