Gold price consolidates below two-week high; bullish potential seems intact
- Gold price traders seem non-committed amid a combination of diverging forces.
- The latest optimism around EU’s tariff delay undermines the safe-haven commodity and caps the upside.
- US fiscal concerns, geopolitics, Fed rate cut bets and a weaker USD lend support to XAU/USD.
Gold price (XAU/USD) struggles to gain any meaningful traction and oscillates in a narrow band during the Asian session on Tuesday amid mixed fundamental cues. Investors cheered US President Donald Trump's decision to delay imposing tariffs on the European Union (EU), which, in turn, is seen acting as a headwind for the safe-haven commodity. However, the uncertainty around Trump's trade policies keeps a lid on the optimism, which, along with a broadly weaker US Dollar (USD), lends support to the precious metal.
Investors remain worried that Trump's sweeping tax cuts and spending bill would worsen the US budget deficit. Furthermore, expectations that the Federal Reserve (Fed) will lower borrowing costs further in 2025 keep the USD depressed near its lowest level since April 22 and underpins the non-yielding Gold price. Apart from this, escalating geopolitical tensions on the back of the protracted Russia-Ukraine war and conflicts in the Middle East help limit the downside for the XAU/USD pair, warranting caution for bearish traders.
Daily Digest Market Movers: Gold price bulls seem reluctant to add to positions amid receding safe-haven drivers
- US President Donald Trump agreed on Sunday to postpone the proposed 50% tariffs on the European Union from June 1 until July 9. The announcement followed a call with EU President Ursula von der Leyen, who said that the bloc was ready to move quickly in trade talks with the US but needed more time to strike a deal.
- The development offered some relief to markets, though investors remain on edge amid the uncertainty surrounding Trump's trade policies and deep-rooted tensions between the US and China – the world's two largest economies. Apart from this, US fiscal concerns and geopolitical risks lend some support to the Gold price.
- Trump’s dubbed “Big, Beautiful Bill”, which would add an estimated $4 trillion to the federal primary deficit over the next decade, was passed in the lower house last week and will be voted on in the Senate this week. This fuels worries that the US budget deficit could worsen at a faster pace than previously expected.
- Meanwhile, signs of easing inflationary pressure in the US lifted market bets that the Federal Reserve will eventually step in to support economic growth. In fact, traders are pricing in the possibility of at least two 25 basis point Fed rate cuts by the year-end, which keeps the US Dollar depressed near the monthly low.
- Russia launched the largest aerial assault since its full-scale invasion of Ukraine in February 2022. In response, Trump said that he was considering new sanctions against Russia and called Russian President Vladimir Putin crazy. Moreover, the continuous Israeli strikes on Gaza keep the geopolitical risk in play.
- Traders now look forward to Tuesday's US macro releases– Durable Goods Orders and the Conference Board's Consumer Confidence Index. The focus, however, will be on FOMC minutes, due on Wednesday, which might offer some cues about the Fed's rate-cut path and provide some impetus to the USD.
- This week's US economic docket also features the release of the Prelim Q1 GDP and the Personal Consumption Expenditure (PCE) Price Index on Thursday and Friday, respectively. This, in turn, should infuse some volatility around the XAU/USD pair and allow traders to grab meaningful opportunities.
Gold price flirts with ascending trend-line; 100-period SMA on H4 holds the key for bulls
From a technical perspective, the commodity currently flirts with short-term ascending trend-line support. Some follow-through selling and a subsequent break below the overnight swing low, around the $3,324-3,323 region, could drag the Gold price to the $3,300 round figure. The latter nears the 100-period Simple Moving Average (SMA) on the 4-hour chart, which if broken decisively should pave the way for deeper losses.
On the flip side, Friday's swing high, around the $3,366 area, now seems to act as an immediate barrier. A sustained strength beyond will be seen as a fresh trigger for bulls and allow the Gold price to reclaim the $3,400 mark. The next relevant hurdle is seen near the $3,430 region, above which the XAU/USD could surpass an intermediate resistance around the $3,465-3,470 zone and challenge the all-time peak, around the $3,500 psychological mark touched in April.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.