Gold Eyes Breakout as Trade War Rhetoric, Bond Jitters Resurrect Safe-Haven Bid

Published 02/06/2025, 10:25
Updated 02/06/2025, 10:26
  • Gold eyes breakout as trade tensions and bond jitters revive safe-haven demand.
  • ECB cut, US jobs data could shift sentiment and reinforce bullish gold momentum.
  • $3,320 remains key resistance—breakout may trigger fresh rally toward $3,400 and above.
  • Looking for actionable trade ideas to navigate the current market volatility? Subscribe here to unlock access to InvestingPro’s AI-selected stock winners.

Gold finished the month of May flat as a pancake, but don’t take that as a sign of weakness. Investors have been piling into the yellow precious metals in the preceding months quite significantly as the trade war uncertainty added to years of high inflation eroding the value of fiat currencies, while rising debt levels among major developed economies, not least the US and Japan, have fuelled fears of a major economic shock.

In May, optimism about trade deals prevented the precious metal from breaking out to new highs despite further weakness for the US dollar. But trade uncertainty has now come back to the forefront, and so we could potentially see fresh gains for the yellow metal soon, with potential for sharp gains this week, especially if the US and Japan bond market selling continues.

Risk Assets Could Be Bracing for a Bumpy June Amid Trade Uncertainty

The S&P 500 ended Friday going nowhere fast, flat, in fact. But just as investors were exhaling after a strong May, late Friday saw Donald Trump drop a fresh dose of market stress. Post-close on Friday, the US President announced plans to double tariffs on steel and aluminium—from 25% to 50%.

Now, let’s not forget: May was no slouch. Global equities had their best month since November 2023, with markets rallying on the belief that the worst of the US tariff threats had passed. Risk assets were back in favour. But that relief rally may be short-lived, and June is already setting up to be a tricky month.

The return of trade war chatter is one thing, but there’s also the spectre of bond market turbulence as US lawmakers enter the ring to hash out a massive tax and spending package.

All this while the debt ceiling deadline looms and concerns about runaway government debt grow louder.

Put simply, volatility could easily make a comeback, and this puts gold in pole position to outshine everything else again.

ECB and NFP Among Week’s Traditional Macro (BCBA:BMAm) Highlights

It’s shaping up to be a big week on both sides of the Atlantic. The European Central Bank is widely expected to cut rates by 25 basis points on Thursday, June 5—a move that’s been telegraphed for weeks amid cooling inflation. But it’s not just about the rate cut anymore. Markets will be hanging onto every word of Christine Lagarde’s press conference for hints about what’s next.

Will the ECB ease further this summer, or take a breather and watch how the data evolves? A cautious, wait-and-see tone wouldn’t be surprising.

Over in the US, the macro calendar is packed. The spotlight is on Friday’s non-farm payrolls report for April, dropping June 6. With Fed policy still very much data-dependent, this jobs report could tip the scales. Traders will also be watching to see if trade war jitters are starting to seep into the labour market. We’ve already seen softer consumer sentiment and weaker GDP consumption components lately, so this will be another critical piece of the puzzle.

Before that, we’ll also get JOLTS job openings and both ISM PMIs—more breadcrumbs for the market to follow. All in all, it’s a pivotal week for both euro and dollar watchers, but one that could also impact gold prices.

Gold Technical Analysis

Now, from my political point of view, gold’s consolidation in the last several weeks has allowed the momentum indicators to unwind from severely overbought conditions on multiple timeframes, including the daily chart. Overall, gold has managed to hold above most of its support levels, including the bullish trendline that has been in place since the start of this year, as well as the key moving averages and support levels you can see on the chart.

With price testing the resistance trend of the consolidation pattern on multiple occasions recently, a potential breakout could be on the cards, possibly as early as today, or later on this week.

Gold Daily Chart

Gold Trade Ideas and Levels to Watch

If the break does happen, and we move decisively above the $3,320 resistance level, then that could potentially pave the way for a test of the next resistance at $3,360, above which there’s not much significant resistance seen until $3,400. Thereafter, the next bullish target is around $3,435, followed by the all-time high at $3,500.

Short-term support is seen between $3,245 and $3,275. This area is shaded in grey on the chart. Below that, we have the bullish trend line coming in at $3200, followed by the previous high that was made in early April at $3,167.

The line in the sand for me is at $3,120, marking the most recent law. Should gold prices break below that level, it will have taken out the bullish trend line and created another lower low – and therefore, a clear bearish signal. If that were to happen, then we could potentially see gold dip down to key support at around the $3,000 mark. The long-term trend line comes in at around $2,870, below which we have the 200-day moving average, some $40 lower.

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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.

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