Gold and Silver Rally on Inflation Fears as US Dollar Weakens

Gold (XAU) shows positive price action after last week’s drop to the $3,000 level. This development is supported by a decline in real yields and rising inflation expectations, as shown in the chart below. Moreover, the US dollar remains weak despite rebounding from strong support at 103.50. The weakening dollar and falling yields reduce the opportunity cost of holding gold, making the metal more attractive to investors.

US consumer confidence dropped sharply in March from 100.1 to 92.9, its lowest reading in over four years. The data missed expectations of 94.2 and highlighted household fears of a potential recession. This contributed to a growing stagflation narrative, where inflation stays high even as growth slows. Write-in responses from the Conference Board survey pointed to rising concerns over trade policies and tariffs, which added to inflation expectations and boosted demand for safe-haven assets.

On the other hand, Fed commentary added further support to gold prices. Governor Adriana Kugler noted that goods inflation is reaccelerating in some sectors, while New York Fed President John Williams highlighted increased uncertainty among companies and households. On Monday, Atlanta Fed President Raphael Bostic projected only one rate cut in 2024 and warned inflation may not reach the target until 2027. Despite this, markets have priced in 64.5 basis points of easing in 2025, suggesting continued uncertainty and adding upward pressure on gold as a hedge against long-term inflation.

Why Inflation Fears Are Growing Amid Trade Wars and Geopolitical Tensions

Inflation has always been a feature of fiat currency systems, but its pace and triggers vary over time. Since the United States ended the dollar’s convertibility to gold in 1971, inflation has no longer been tethered to a hard asset. This shift removed the natural limit on money creation, as central banks no longer had to back their currency with gold. As a result, the dollar’s value steadily declined. The chart below shows the purchasing power of the US dollar since 1960. This long-term erosion illustrates how inflation can silently erode wealth, especially when no structural checks are in place.

Despite occasional periods of deflation—like in 2009 during the global financial crisis—inflation remains the norm. The occasional deflation within the long-term trends is observed in the chart below. The inflation rate fluctuates based on multiple drivers: money supply growth, energy prices, wage trends, and external shocks. One of the most impactful deflationary forces in recent decades came from globalization. After China joined the WTO in 2000 and received favoured nation status, the global supply of cheap goods surged. China’s low wages, industrial subsidies, and lax regulations allowed it to undercut manufacturing in developed nations, creating a steady stream of low-priced imports that helped suppress inflation worldwide.

However, that deflationary pressure is now reversing. Trade wars, tariffs, and rising geopolitical risks are disrupting global supply chains. The protective walls going up around economies mean fewer cheap imports and rising production costs. For example, US tariffs on key trading partners are already sparking fears of price increases. As countries prioritize economic self-reliance and national security, they move away from efficiency and toward redundancy. That shift increases costs and injects fresh inflationary pressure into the system. With no gold standard to anchor the dollar, inflation becomes not just likely—but potentially persistent.

Gold (XAU) Technical Analysis

Gold Daily Chart – Resistance

The daily chart for gold shows that the price has rebounded from the $3,000 support level and is building positive momentum for another move higher. A break above $3,055 will keep the uptrend intact and could trigger a rally toward the $3,200 level.

Gold 4-Hour Chart – Positive Price Action

The 4-hour chart for gold shows that the price is building positive price action above the $3,000 level, as it failed to break below $3,000 after two attempts. As long as the price remains above $3,000, it is likely to move higher.

Silver (XAG) Technical Analysis

Silver Daily Chart – Positive Price Action

Silver (XAG) reversed higher on Tuesday as the price structure remains strongly bullish. The positive price action above the key level of $32.50 indicates a potential move toward $35. The 50 and 200 SMAs remain positive and are trending higher, suggesting that silver is likely to maintain its bullish momentum.

Silver 4-Hour Chart – Ascending Broadening Wedge

The 4-hour chart for silver shows that the price reversed from $32.80 and formed a rounding cup pattern. This reversal indicates that silver is building positive momentum to move toward $35 within the ascending broadening wedge pattern.

US Dollar (DXY) Technical Analysis

US Dollar Daily – Rebound from Support of 103.50

The US Dollar Index rebounded from the support level of 103.50 and showed positive price action toward 105.20. However, the overall trend remains negative, and the index will likely move lower once the market stabilizes.

US Dollar 4-Hour Chart – Divergence

The rebound in the US dollar was part of a positive price development, as the index formed a double bottom and a divergence on the 4-hour chart. However, the index remains within the descending channel, with strong resistance at 105.20.