Gold/USD (XAU/USD) futures suddenly took a sharp downward trend on Wednesday, shortly after President Donald Trump backed off his threats to fire Federal Reserve Chairman Jerome Powell, which also supported the US dollar’s recovery.
Undoubtedly, the sharp rally in the US dollar index on Wednesday was clear enough to give investors a sense of relief, while optimism about global trade agreements boosted weak sentiment, as markets faced the idea that the Fed’s independence could be threatened if President Trump continues to interfere in the Fed’s work beyond the limit.
The hesitant moves of gold futures and the US dollar are pushing investors to look for the root causes behind the increasing volatility globally, especially as economic policies have changed under US presidents since January 2017, when President Trump first took office.
Investors were probably aware of the current economic turmoil, as President Trump assured the world to make America great again during his election campaign, and after winning the election in November 2024, he signaled a comprehensive overhaul of US economic policy to achieve his dream.
If we analyze the movements of the US dollar index and gold futures on monthly charts, we can see how both the US dollar index and gold futures began their directional moves in November 2024.
I expect that US President Donald Trump could not assess the destructive nature of his tariff trade policies in advance, as their implementation proved to cause fatal shocks in global economic policies, adding to fears of a global economic recession in 2025.
Trump no doubt realized that on Wednesday, he never wanted to weaken the U.S. dollar, and he has now.
Gold corrects lower amid Trump’s economic uncertainty
Gold prices saw a sharp correction on Wednesday after touching record highs the previous day, but analysts expect the yellow metal to maintain its strength in 2025 amid global uncertainty and continued demand from central banks.
I expect that Trump’s habit of taking sudden economic steps without consulting an economist is likely to keep the scenario full of uncertainty this year, despite the dollar’s decline and the rise in gold prices.
When analyzing gold futures movements on the monthly chart, I expect that gold futures have started to reverse from their highest level this year, and a break below the spot support level at $2971 will confirm a downtrend for the yellow metal.
Conversely, if gold futures try to move upwards, the spot resistance will be at USD$3373.
On the other hand, if gold futures do not maintain the spot support level at USD$2971, the next target could be at the 9-day moving average at USD$2825.
“It’s no surprise that Trump called on the Fed chairman to cut interest rates — he’s done so many times in the past. But even more surprising is the rapidly intensifying attacks, as well as the apparent threat of Powell’s removal from office (according to the director of the National Economic Council, this was under consideration). It’s clear why gold could benefit from this.”
The US dollar index is trying to maintain strong support at the 100-day moving average at $98 after rebounding from this month’s high of $104, and a breakdown below this strong support could prompt the dollar index to test the next support level at the 200-day moving average at $91.61.
US statements confuse XAU and silver and cause a decline
While the price of spot gold hit a new record high yesterday at $3500.00, it was then reversed on the back of comments by the US Treasury Secretary that boosted hopes of a deal with China, and then fell further with President Trump indicating that he has no intention of firing Federal Reserve Chairman Jerome Powell.
This could mark the start of a real downturn for gold, as the first target will be its early April high of USD$3167.00. Below this level, comes April’s low of USD$2970.00.
Spot silver gains over the past week stopped at USD$33.00, although we also saw support at USD$32.00.
A daily close below this level will open the way to reach USD$31.00, the lowest level recorded in late February. However, a close above $33.00 may push the price towards March highs.
If the US government persuades the US Federal Reserve to go along with its plans, it will likely implement a very loose monetary policy and trigger a significant rise in US inflation. These developments will make gold more attractive as an investment. The scope of the attack on central bank independence becomes clear in extreme cases like Turkey, where inflation has stayed in the double digits for over five years, recently hitting nearly 40%, and the currency has lost a tremendous amount of value as a result.
The price of gold fell again during yesterday’s trading, and fell to $ 3300 today, after Trump somewhat retreated from his position. What will happen now? It depends, on the one hand, on whether Trump continues his verbal attacks, or whether Powell’s early firing becomes more likely, and, on the other, on the Federal Reserve’s reaction to his comments at its next meeting on May 7.
