Gold extended its decline for a second consecutive session on Thursday, dropping to its lowest level in over a month—briefly sliding below the $3,150 mark during the Asian trading hours. The precious metal is now on track for its third decline in the past four sessions, as optimism surrounding a thaw in US-China trade relations continues to dent demand for traditional safe-haven assets.
Trade Truce Weakens Bullion’s Appeal
This latest leg down in gold is primarily driven by market optimism following the announcement that the United States and China have agreed to suspend steep tariffs for 90 days. Investors welcomed the move as a potential turning point in what had become an economically damaging trade war between the world’s two largest economies. The easing of tensions reduced fears of a global slowdown and, by extension, decreased the urgency to hedge with safe-haven assets like gold.
The positive sentiment also weighed on expectations for aggressive monetary policy easing by the Federal Reserve. With recession risks easing, market participants have scaled back bets for deep rate cuts. The probability of a full percentage point cut has faded, with futures markets now pricing in just over 50 basis points of easing for 2025—down from over 100 bps a few weeks ago. As a result, US Treasury yields have climbed to monthly highs, further reducing gold’s attractiveness as a non-yielding asset.
Muted Dollar Response and Risk Sentiment Wavers
Interestingly, the US Dollar has failed to build significantly on the positive macro backdrop. Despite stronger Treasury yields and declining Fed rate cut bets, the greenback remained relatively flat on Thursday, suggesting some investor caution ahead of upcoming economic data. The Dollar’s softness, however, has done little to support gold prices, indicating that the metal is currently more reactive to macroeconomic confidence than currency dynamics.
Equity markets, too, displayed a weaker tone during the Asian session, hinting at a minor pullback in global risk appetite. Yet even this has not revived interest in bullion, highlighting a broader shift away from defensive positioning in the current climate.
Key Data and Fed Speeches Awaited
Market focus now shifts to the upcoming US Producer Price Index (PPI) data and Federal Reserve Chair Jerome Powell’s speech later in the North American session. Both events could offer important clues about the Fed’s policy trajectory, particularly in light of recent inflation readings and shifting trade policy dynamics. The results will likely determine whether the current downtrend in gold has room to extend further.
Fed policymakers have struck a cautious tone in recent speeches. Vice Chair Philip Jefferson flagged the potential inflationary implications of new tariffs and reiterated that current policy remains well-positioned. Meanwhile, San Francisco Fed President Mary Daly and Chicago Fed President Austan Goolsbee emphasized patience, citing the need for clearer data trends before making adjustments.
Geopolitical Tensions Linger, But With Limited Impact
Geopolitical risks remain on the radar. Ukrainian President Volodymyr Zelenskyy confirmed his intention to attend peace talks with Russia, though President Vladimir Putin will reportedly not attend. Meanwhile, Israel intercepted a missile from Yemen, and continued airstrikes in Gaza resulted in significant casualties. While such events often trigger a bid for gold, recent price action shows limited reaction, further underscoring the dominance of economic factors over geopolitical ones for now.
Technical Outlook: XAU/USD Vulnerable Below Key Support
From a technical perspective, gold’s drop below the $3,200 level and the 61.8% Fibonacci retracement of the April rally signals renewed bearish momentum. Oscillators on the daily chart are gaining negative traction, reinforcing the downside bias.
Immediate support lies between $3,135 and $3,133, and a sustained break below this zone could open the door for a test of the $3,100 psychological mark.
A further drop could expose the next significant support level near $3,060.
On the upside, recovery attempts will likely face resistance near the $3,168–3,170 zone, which aligns with the 61.8% Fibo level. Further resistance lies at $3,200, followed by $3,230 (50% Fibo). A break above this level would be needed to invalidate the current bearish setup and target the $3,265–$3,300 range.
Conclusion
While gold remains well above the critical $3,000 support, current momentum favors the bears. A combination of rising yields, reduced recession fears, and easing geopolitical tensions has eroded bullion’s appeal. Traders will now closely watch macro data and central bank rhetoric to determine whether the recent selloff is a short-term correction or the beginning of a deeper retracement.
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