Gold price seems vulnerable below $3,300 amid modest USD strength
- Gold price turns lower following an Asian session uptick amid some follow-through USD buying.
- A positive risk tone further undermines the XAU/USD pair, though the downside seems limited.
- Trade caution, US fiscal concerns, and Fed rate cut bets act as a tailwind for the precious metal.
Gold price (XAU/USD) struggles to capitalize on a modest Asian session uptick and currently trades just below the $3,300 mark, close to the weekly low touched the previous day. Better-than-expected US economic data released on Tuesday calmed recession fears and assisted the US Dollar (USD) in attracting buyers for the second straight day, which, in turn, is seen undermining the commodity. Apart from this, a generally positive risk tone turns out to be another factor acting as a headwind for the safe-haven precious metal.
However, the uncertainty surrounding US President Donald Trump's trade tariffs remains, which, along with geopolitical risks, should keep a lid on the market optimism. Apart from this, concerns about the worsening US fiscal situation and bets that the Federal Reserve (Fed) will cut interest rates further in 2025 should keep a lid on any meaningful USD upside. This might hold back traders from placing aggressive bearish bets around the Gold price and warrants some caution before positioning for further depreciation.
Daily Digest Market Movers: Gold price struggles to lure buyers amid modest USD strength, positive risk tone
- The US Census Bureau reported on Tuesday that Durable Goods Orders declined by 6.3% in April, marking a significant decline and a stark turnaround from the 7.6% increase (revised from 9.2%) in the previous month. The reading, however, was better than the market expectation for a decrease of 7.9%. Adding to this, orders excluding transportation rose 0.2% during the reported month.
- Moreover, the Conference Board's US Consumer Confidence Index rebounded sharply after a prolonged decline since December 2024 and jumped to 98 in May. This represents a 12.3 points increase from 85.7 in April or the biggest monthly rise in four years amid an improving outlook for the economy and the labor market on the back of the US-China trade truce, which underpins the US Dollar.
- US President Donald Trump decided to postpone the proposed 50% tariffs on the European Union from June 1 until July 9, offering some relief to markets and weighing on the safe-haven Gold price. Investors, however, remain on edge amid the traded uncertainty, deep-rooted US-China trade tensions, concerns about the worsening US fiscal condition, and persistent geopolitical risks.
- Meanwhile, traders have been pricing in the possibility of at least two 25 basis points interest rate cuts by the Federal Reserve in 2025. The bets were reaffirmed by signs of easing inflationary pressures. Adding to this, expectations that Trump’s dubbed “Big, Beautiful Bill”, if passed in the Senate, would worsen the US budget deficit at a faster pace than expected should keep a lid on further USD gains.
- On the geopolitical front, Trump on Tuesday said that Russian President Vladimir Putin was playing with fire by refusing to engage in ceasefire talks with Ukraine. The remarks followed Russia's deadliest drone and missile attacks on Ukraine since the full-scale invasion in February 2022. Furthermore, an Israeli official rejected claims that Hamas agreed to a new Gaza ceasefire deal proposed by the US.
- Traders now look forward to the release of FOMC meeting minutes for cues about the future rate-cut path, which will play a key role in influencing the USD and providing some meaningful impetus to the non-yielding yellow metal. This week's US economic docket also features the Prelim Q1 GDP and the Personal Consumption Expenditure (PCE) Price Index on Thursday and Friday, respectively.
Gold price could accelerate the slide once the 200-period SMA on the 4-hour timeframe is broken decisively
From a technical perspective, the overnight breakdown through a short-term ascending trend line was seen as a key trigger for bearish traders. Some follow-through selling below the 200-period Simple Moving Average (SMA) and acceptance below the $3,300 mark will reaffirm the negative bias. However, oscillators on the daily chart – though they have been losing traction – are yet to confirm the negative outlook. Hence, any subsequent fall could attract some buyers and find decent support near the $3,250-3,245 horizontal zone. The latter should act as a pivotal point, which if broken would set the stage for a further near-term depreciating move for the Gold price.
On the flip side, momentum beyond the Asian session peak, around the $3,315-3,316 area, now seems to confront some hurdle near the $3,340-3,345 region. The latter coincides with the ascending trend-line breakpoint, above which a fresh bout of a short-covering could lift the Gold price to over a two-week high, around the $3,365-3,366 zone touched last Friday. The subsequent move up should allow the XAU/USD pair to reclaim the A sustained strength beyond would be seen as a fresh trigger for bulls and should allow the Gold price to reclaim the $3,400 mark and climb further to the next relevant barrier near the $3,465-3,470 zone.
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.