Gold prices continued their downward trajectory on Thursday, extending losses for a second consecutive session amid improving global trade sentiment and diminishing expectations for aggressive interest rate cuts by the Federal Reserve.
In early Asian trading, XAU/USD fell to the $3,135 level, marking its lowest point since April 10. The sustained decline reflects a shift in investor appetite away from safe-haven assets as geopolitical and economic uncertainties ease.
Trade Truce Dampens Recession Fears, Weakens Gold Appeal
A temporary easing of US-China trade tensions has been a primary catalyst for the recent sell-off in gold. The two economic giants agreed to suspend steep tariffs for at least 90 days, alleviating concerns over a potential slowdown in global economic growth. US President Joe Biden expressed optimism about direct negotiations with Chinese President Xi Jinping, further boosting investor confidence.
The truce has tempered fears of a US recession and reduced the urgency for aggressive monetary easing by the Federal Reserve. As a result, traders have scaled back their expectations, now pricing in approximately 50 basis points of Fed rate cuts for 2025, down significantly from forecasts of over 100 basis points just a month ago.
This shift has driven US Treasury yields higher, with the 10-year benchmark reaching a one-month peak, intensifying downward pressure on the non-yielding yellow metal.
Federal Reserve Cautious, Market Awaits Powell’s Remarks
Despite supportive factors, the US Dollar (USD) remains in a holding pattern, with market participants awaiting key economic data releases. The upcoming US Producer Price Index (PPI) and comments from Federal Reserve Chair Jerome Powell are expected to provide further clarity on the central bank’s policy direction.
Fed Vice Chair Philip Jefferson recently warned that tariffs and trade uncertainties could threaten progress on inflation, though current data indicates movement toward the Fed’s 2% target. Other Fed officials, including Chicago Fed President Austan Goolsbee and San Francisco Fed President Mary Daly, echoed a cautious stance, emphasizing the need for patience in assessing incoming data before adjusting rates.
Geopolitical Tensions Persist but Fail to Support Gold
Geopolitical risks remain elevated but have so far failed to bolster gold’s appeal. Ukrainian President Volodymyr Zelenskyy confirmed his participation in upcoming peace talks with Russia, though the Kremlin announced President Vladimir Putin would not attend. Meanwhile, the Middle East conflict escalated, with Israel intercepting a missile from Yemen and launching retaliatory strikes on Gaza, resulting in heavy casualties.
Despite these developments, risk sentiment in global markets remains relatively resilient, limiting safe-haven inflows into gold.
Technical Outlook: Key Support Levels in Focus
From a technical perspective, gold’s breakdown below the $3,200 mark and the 61.8% Fibonacci retracement level of April’s rally has reinforced bearish sentiment. Daily momentum indicators suggest growing negative traction, with immediate support identified in the $3,135–$3,133 range.
A decisive break below this zone could pave the way for further declines toward the $3,100 psychological level, and potentially to the next major support near $3,060.
On the upside, recovery attempts are likely to face stiff resistance near the $3,168–$3,170 area, coinciding with the 61.8% Fibo retracement. Further resistance lies at $3,200 and subsequently at $3,230, marking the 50% retracement level. A breakout above these levels could trigger short-covering, with potential upside targets at $3,265 and $3,300 (38.2% Fibo level).
Outlook: Bearish Bias Intact, Eyes on Data and Fed
In summary, the gold market remains under sustained selling pressure, driven by improving trade relations, higher US yields, and recalibrated Fed expectations. With key technical levels breached and fundamental headwinds in play, the bearish outlook for gold persists in the near term.
However, upcoming US economic indicators and Federal Reserve communications will be crucial in shaping the next directional move for XAU/USD.
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