Trump Calls on the Fed to Ease Rates

Gold achieved a new record as the Fed kept a restrictive stance despite reducing growth forecasts, but pressure from Donald Trump to ease is mounting due to ongoing trade uncertainties.

Strong Safe Haven Demand

Gold reached an all-time high last week after the Fed kept interest rates unchanged and reduced its growth forecasts while tensions in the Middle East escalated. The White House confronted Iran over disruptions to shipping in the Red Sea caused by Yemeni rebel missile attacks, which further contributed to gold prices amid the existing strain from tariffs. Citigroup is among the latest to raise its gold price target, projecting a target of $3,200 per ounce within three months and even $3,500 by the end of the year, noting fears of stagflation or a hard landing in the US.

These concerns over a hard landing have persisted for over a month, with President Donald Trump refusing to rule out a recession and pointing to a "transition" period. After the Fed’s decision to ‘hold’, Trump called on the Fed for lower rates, specifically citing the impact of tariffs. Economists also believe that the tariff conflicts initiated by the Trump administration will contribute to an economic slowdown without the typically seen drop in consumer prices. This would be a challenging scenario for the Fed as it tries to balance controlling inflation while supporting full employment.

Where the Indicators are Pointing

Markets still expect a rate cut by the Fed in June, although the GDPNow forecast for Q1 GDP has been moderating recently. It currently projects -1.8% growth for the first three months of the year, primarily due to businesses anticipating the effects of tariffs but also due to a slowdown in consumer demand. A negative quarter would increase pressure on the Fed to ease, as maintaining high rates during an economic slowdown could cause inflation to undershoot the target.

Due to ongoing uncertainty and the potential for trade tensions, safe-haven gold might see more demand. However, some analysts caution that recent gains have placed the yellow metal in overbought territory, and a deeper correction may be expected. The record peak also came from a confluence of economic data, geopolitical events, and market factors, but whether these will reoccur soon is uncertain, which leaves gold vulnerable to further drops. A potential easing of trade tensions, such as an agreement with Canada, could exacerbate the technical setup if it were to occur unexpectedly.

Gold's H&S Topping Pattern

The price action of gold also reveals a head-and-shoulders (H&S) top formation at $3060 per ounce, indicating a potential continuation towards the measured move low of $2980 (measured from the breakout point of $3020 per ounce). However, further declines could open the door to a broadening wedge pattern instead, exposing lower levels around the $2930 swing area if $2980 gave way to bears. Only a move above the shoulder peaks of $3040 and $3050 or the record peak could reverse the short-term bearish trend, with the next resistance at the round $3100 level.

Source: SpreadEx / Spot, Gold

Key Takeaways

Gold reached new heights recently, but the move was driven by a combination of economic concerns and geopolitical tensions, with the outlook still uncertain as the Fed steers a potential economic slowdown amid pressure from the White House to ease. The technicals also suggest that gold may be due for a deeper correction after its recent gains and its failure to reclaim the top, leaving room for a potential H&S post-formation decline.