(Kitco News) - The gold market is seeing some significant volatility as its months-long arbitrage trade comes to an end.
At the North American open gold prices were down 2% on the day; however, prices have since recovered and are relatively neutral on the day.
After weeks of uncertainty, President Donald Trump announced his global import tariffs but excluded precious metals, along with copper, steel, and aluminum—making the increased stockpiles in New York vaults redundant.
While gold could see further profit-taking in the near term as investors navigate the new tariff landscape, some analysts have said that the precious metal remains well-supported.
In a comment to Kitco News, Kelvin Wong, Senior Market Analyst at OANDA, said that while some uncertainty has been reduced with Trump’s tariff announcement, there is still plenty of fear in the marketplace to drive gold higher.
“The latest round of trade tariffs from the US White House administration has increased the probability of a stagflation environment in the US. Given that the world has not witnessed a stagflation environment since the 1970s to early 1980s period, there will be more uncertainty in terms of business strategy planning and implementation of monetary policies to negate weakness in economic growth, which in turn benefits gold as a form of hedging demand,” he said.
Wong added that further weakness in U.S. equity markets will also support gold as an important risk-off hedge. As bad as gold’s initial selloff on Thursday, it continues to outperforming equity markets.
The S&P 500 Index began the North American trading session with significant losses and continues to lose ground, falling 4%; the broad equity index last traded at 5,442 points. Meanwhile, spot gold last traded at $3,126.80 an ounce, roughly flat on the day.
“Key near-term support for Gold (XAU/USD) will be at US$3,080/3,060 with near-term resistances at US$3,180 and US$3,215,” said Wong.
Commodity analysts at TD Securities are also expecting further volatility in gold, which is "overbought but under-owned.”
“Non-CTA money managers now hold less gold than they did in March of last year,” the analysts said. “Macro funds have been liquidating into a Chinese bid, shrinking their position sizes towards levels that allow us to argue that gold is actually under-owned today, despite what you might expect by looking at the price chart.”
TDS also noted that while gold prices have room to fall, they see limited downside risks. They explained that gold’s rally in the last 12 months means many investors are sitting on significant profits and are not threatened by short-term selling pressure.
“CTAs won't sell in size until we draw down significantly,” the analysts said. “Downside risk is more likely to be limited to a consolidation in time should we see signs of buying exhaustion.”
Gold prices have rallied 32.5% in the last 12 months and are up more than 18% in the first quarter of 2025. Gold also posted its best quarterly performance in 39 years.
