Gold prices (XAU/USD) are treading water at a crucial technical juncture, as traders weigh a mix of supportive fundamentals against resistance from a well-defined downtrend. After a robust rally last week, momentum in the precious metal has slowed, reflecting heightened caution ahead of a packed calendar of economic data releases and U.S. Federal Reserve communications.
Trade Hopes vs. Fiscal Worries: A Delicate Fundamental Balance
Recent developments in global trade have offered short-term relief to risk markets, but gold continues to find underlying support thanks to broader concerns over the U.S. economy and fiscal policy.
President Donald Trump’s decision to delay the implementation of a 50% tariff on European Union imports until July 9 has cooled near-term trade war fears. This sparked modest optimism among investors and briefly softened safe-haven demand. However, that relief has been counterbalanced by alarm over the long-term implications of Trump’s latest spending bill, which is projected to inflate the federal deficit by $4 trillion over the next decade, according to the Congressional Budget Office.
These fiscal concerns, in tandem with expectations of weaker U.S. economic growth, have increased the appeal of gold as a hedge. Lower inflation prints—both CPI and PPI—have shifted market expectations decisively toward a more accommodative Fed. Futures markets are now pricing in at least two 25-basis-point interest rate cuts in 2025. In a lower-rate environment, non-yielding assets like gold typically become more attractive.
Meanwhile, geopolitical tensions remain unresolved, adding to the metal’s defensive appeal. Escalating conflict in Ukraine and unrest across parts of the Middle East continue to weigh on investor sentiment, even as broader markets attempt to price in trade optimism.
Dollar Weakness Adds Tailwind to Gold
The U.S. dollar has been in a sustained downtrend over the past two weeks, touching a fresh monthly low. As gold is priced in dollars, this decline has further supported demand by making the metal more affordable to foreign investors.
Currency strategists point to the combination of dovish Fed expectations, structural fiscal imbalances, and global diversification away from U.S. assets as drivers behind the dollar’s weakness. UBS recently downgraded the dollar to “Unattractive”, signaling a broader shift in institutional sentiment.
Until clearer policy signals emerge from the Federal Reserve, particularly via the upcoming FOMC minutes, and additional economic data such as Durable Goods Orders, GDP revisions, and the PCE Price Index, gold may remain supported but range-bound.
Technical Picture: Gold Consolidating Below Key Resistance
On the technical front, gold is consolidating within a descending channel pattern that has been in play since mid-April. This bearish formation has consistently limited upside attempts, as lower highs and lower lows have guided price action.
Currently, gold is testing resistance around $3,358, marking the upper boundary of the channel. This zone has historically attracted selling pressure, as seen in multiple prior rejections. The orange-circled areas on the chart illustrate how price rallies to this line have previously been followed by pullbacks.
Support lies near the lower boundary of the channel, just above $3,100, a level that has repeatedly served as a launchpad for rebounds. The midline of the channel, now recently breached, offers a short-term bullish signal, but broader technical structure still leans bearish unless a breakout is confirmed.
A decisive breakout above the descending channel—especially with increased volume and momentum—could invalidate the bearish trend and trigger a new leg higher. Conversely, another rejection at the upper boundary could prompt renewed selling pressure, pushing prices back toward the $3,100 zone.
Conclusion
Gold remains tightly range-bound as markets await clarity on U.S. monetary policy and economic resilience. On one hand, weakening U.S. data, a softening dollar, and rising rate-cut bets provide a supportive backdrop. On the other, technical resistance at the top of the descending channel continues to cap further upside.
In this context, traders should stay alert for key breakout signals or signs of rejection at the current pivot zone. The upcoming U.S. data releases and Fed commentary will likely determine whether gold breaks out of its consolidation phase—or resumes its downward trajectory within the prevailing trend channel.
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