Gold firms as Trump's tax bill, tariff risks fuel safe-haven demand
- Gold price edges higher as trade risks rise ahead of tariff deadline.
- The US Dollar retreats on Independence Day holiday amid thin liquidity and rising long-term fiscal concerns.
- XAU/USD price compression hints at breakout potential toward $3,400.
Gold (XAU/USD) is trading higher on Friday as news about United States (US) President Donald Trump’s passage of the “Big, Beautiful, Bill” filters through markets. With markets closed in the US in celebration of Independence Day, XAU/USD is trading above $3,330 at the time of writing.
Liquidity is expected to remain light in the US following the holiday weekend, which could make bullion sensitive to developments that may influence risk sentiment.
Risk appetite improved this week, following reports that the US was making progress in trade talks ahead of the July 9 deadline. However, the mood has shifted slightly on Friday as tariff uncertainty and President Trump’s threats to send letters to nations dictating the amount that they will pay to do business with the US.
On Friday, Trump stated that “We’re probably going to be sending some letters out, starting probably tomorrow, maybe 10 a day to various countries saying what they’re going to pay to do business with the US,” according to Reuters.
“They’ll range in value from maybe 60% or 70% tariffs to 10% and 20% tariffs,” was the range that Trump gave Bloomberg reporters.
Looking ahead, market focus will shift to ongoing trade negotiations, which could introduce fresh volatility. If trade talks deteriorate or geopolitical tensions rise, investors may rotate into safe-haven assets like Gold.
Additionally, the proposed “Big, Beautiful, Bill” was passed by the House of Representatives late Thursday following the release of crucial economic data from the US.
Daily digest market movers: Concerns over debt sustainability limit Gold’s declines
- A Truth Social post on Thursday by President Trump stated: “The Republicans in the House of Representatives have just passed the ‘ONE BIG BEAUTIFUL BILL ACT.’ Our Party is UNITED like never before, and our Country is ‘HOT.’… We are going to have a Signing Celebration at the White House tomorrow, at 4 P.M. EST.”
- The primary objective of the GOP Megabill is to extend tax cuts for individuals and businesses introduced in the 2017 version of Trump’s Tax and Jobs Act. The bill also includes initiatives to address illegal immigration while expanding the scope of projects, such as the “Golden Dome” defense plan. While the spending and tax bill clamps down on Medicaid and green energy initiatives, this has raised concerns over the fiscal and sustainability of the US debt
- The law raises the debt ceiling by $5 trillion. This is the upper limit on what the government can borrow. Meanwhile, the Congressional Budget Office (CBO) estimates it will increase the national deficit by $3.3 trillion over the next decade.
- Over time, a rising deficit and mounting debt burden can undermine confidence in the US Dollar (USD). Since Gold is priced in Dollars, this could lift XAU/USD by making it more affordable for foreign investors.
- However, interest rate expectations, which are favouring a rate cut by the Federal Reserve (Fed) in September, have tempered short-term gains after Thursday’s data appeared to reduce pressure on the Fed to cut rates in July, which provided some support to US yields.
- The June Nonfarm Payrolls (NFP) report showed 147K jobs added to the US economy, exceeding the 110K estimate. Additionally, the unemployment rate dropped to 4.1% from 4.2%. Weekly Initial Jobless Claims also declined to 233K from 237K.
- The Institute of Supply Management (ISM) Services Purchasing Managers' Index (PMI) rose to 50.8 in June, reflecting an increase in economic activity in the service sector.
Gold technical analysis: XAU/USD price compression signals breakout potential above $3,400
Gold (XAU/USD) is currently consolidating within a symmetrical triangle pattern, signaling potential breakout as price action tightens.
The yellow metal is trading between support at the 50-day Simple Moving Average (SMA) near $3,321 and resistance at the 20-day SMA of $3,350, indicating short-term indecision.
Above the 50-day SMA, key resistance sits near the 23.6% Fibonacci retracement of the April low to the April high move at $3,371. If bulls recover, the next big level of psychological resistance sits at $3,400.
In contrast, below the 20-day SMA, immediate support lies at the $3,300 psychological level, followed by the 50% Fibonacci level at $3,328.
The Relative Strength Index (RSI) is flattening around the neutral 50 mark, signalling a lack of momentum and reinforcing the range-bound behavior.
Gold (XAU/USD) daily chart
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.