Gold (XAU/USD) pauses as attention shifts to Trump’s tax bill
- Gold price pauses above $3,340 as markets look ahead to Thursday’s Nonfarm Payrolls (NFP) report.
- President Trump’s tax bill heads to the House of Representatives after passing the Senate on Tuesday. Fiscal concerns support demand for bullion.
- XAU/USD price action stalls below the 20-day simple moving average, providing resistance at $3,350.
Gold (XAU/USD) price is trading in a tight range as traders digest Wednesday’s Automatic Data Processing (ADP) employment data and look ahead to Thursday’s Nonfarm Payroll (NFP) report.
With XAU/USD hovering near $3,340 at the time of writing, US President Trump’s tax bill and interest rate expectations continue to drive demand for bullion.
The retracement of the April move at $3,229.
A move below could bring the May low of $3,120 mark into play.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.