The rebound came as the U.S. dollar weakened, with the Dollar Index (DXY) slipping 0.3%, making gold more affordable for international buyers. The yellow metal’s advance followed a week marked by heightened volatility and fresh uncertainty surrounding U.S. trade policy and fiscal stability.
Moody’s Downgrade, Tariff Rhetoric Fuel Market Jitters
Two key developments triggered the latest surge in gold demand. On Friday, credit ratings agency Moody’s downgraded the U.S. sovereign credit outlook by one notch, citing escalating concerns over the country’s rising debt burden. Adding to the unease, Treasury Secretary Scott Bessent warned that nations failing to negotiate trade deals “in good faith” could face punitive tariffs reminiscent of former President Donald Trump’s first-term trade policies.
“The downgrade and risk-off tone has given gold new life,” said Tim Waterer, Chief Market Analyst at KCM Trade.
The remarks and downgrade come after gold posted a 2% decline last Friday, capping its worst weekly performance since November. That drop followed a temporary boost in market sentiment due to apparent progress in U.S.-China trade talks. However, with optimism fading and volatility returning, gold is once again back in focus.
Trade Policy, Inflation Data May Accelerate Fed Rate Cuts
Investors are now weighing the broader implications of Trump-era trade rhetoric returning to the fore. Gold, often viewed as a hedge against uncertainty, tends to perform strongly during periods of geopolitical tension and economic instability.
Recent U.S. economic data has added to speculation that the Federal Reserve may cut interest rates sooner than previously anticipated. April’s producer prices unexpectedly declined, retail sales came in below expectations, and consumer prices also undershot forecasts—all signs that inflationary pressures may be easing.
“We could see a Fed cut by July or September,” Waterer noted. “A lot depends on how these trade talks go.”
Lower interest rates generally benefit gold by reducing the opportunity cost of holding non-yielding assets.
Technical Outlook: Key Levels to Watch
From a technical standpoint, gold (XAU/USD) remains trapped within a descending channel on the two-hour chart, currently trading near $3,216. The metal has tested but failed to break above resistance at the top of the channel and the 50-period exponential moving average (EMA) at $3,221 on three separate occasions. A decisive breakout above these levels could signal further upside momentum, with $3,228 seen as the next key threshold.
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