Gold (XAU/USD) rally pauses as sentiment improves, RSI signals potential pullback

Gold prices have pulled back from last week's highs, as market sentiment improves following tariff exemptions on select Chinese tech products. While the full details are still pending, this development could signal a temporary truce in the ongoing trade conflict between the world's two largest economies. However, President Trump remains resolute in addressing what he perceives as “unfair trading balances,” confirming that Chinese-made smartphones and other electronics will not be exempt from tariffs but will instead be moved to a different levy category.

Further details on semiconductor tariffs are expected to be released this week, particularly concerning the impact on electronics and smartphones. Additionally, Trump mentioned on Monday that he is considering adjustments to the 25% tariffs on foreign autos and auto parts imports. This has contributed to renewed optimism in the markets, with European stocks in particular showing strong performance.

Gold's Outlook: Fundamental Support Despite Improved Sentiment

Despite the improved sentiment dampening gold's appeal, the precious metal remains supported by high levels of uncertainty. From a fundamental perspective, increased central bank purchases and expectations of rate cuts by the Federal Reserve continue to act as tailwinds for gold. The Fed has acknowledged the downside risks to economic growth posed by the trade war, leading markets to price in as many as three rate cuts this year, up from just one a few months ago.

As a non-yielding asset, the opportunity cost of holding gold decreases as interest rates and bond yields fall, making the precious metal more attractive to investors.

Technical Indicators: RSI Divergence Suggests Caution

However, technical indicators are beginning to show signs of exhaustion in gold's recent rally. An RSI divergence is currently forming, with the price peak on April 11th not being matched by a higher RSI high. In fact, the RSI has shown a consistent pattern of lower highs, with the March 31st peak lower than that of February 13th, even though prices were rising. RSI divergence often signals a potential shift in trend, suggesting that gold could face heightened resistance and potentially reverse lower.

If a pullback occurs, the $3,000 mark could reemerge as a critical support level, testing investor sentiment and appetite for a further decline. However, this pullback is likely to be a technical correction, with any move lower expected to be shallow unless the tariff situation dramatically improves.

Gold (XAU/USD) daily chart

Past performance is not a reliable indicator of future results.

Conclusion

While the rally in gold prices has shown signs of slowing due to improving market sentiment, the precious metal remains fundamentally supported by ongoing central bank activity and expected interest rate cuts. Technically, RSI divergence could indicate that a pullback is imminent, but any decline is likely to be limited unless there is a significant change in the broader geopolitical or economic outlook.