Gold (XAU/USD) edged lower for the second consecutive session on Tuesday, retreating from a two-week high as renewed risk appetite and a modest rebound in the U.S. Dollar (USD) placed downward pressure on the safe-haven metal. However, lingering uncertainty surrounding U.S. trade and fiscal policy continues to provide a layer of support, keeping bearish momentum in check.
Market Drivers: Trade Optimism Dampens Gold’s Appeal
Investor sentiment improved after President Donald Trump delayed the proposed 50% tariffs on European Union imports, originally set to take effect on June 1, now postponed to July 9. The move, following a call with EU President Ursula von der Leyen, signaled potential for renewed dialogue, temporarily easing fears of escalating trade tensions.
This development buoyed risk-sensitive assets, diverting flows away from gold. However, analysts warn that deep-seated trade tensions between the U.S. and China, and the lack of clarity on broader tariff strategy, could reintroduce volatility.
“While the short-term relief is welcome, markets are hesitant to fully price in a de-escalation,” one analyst noted. “The trade narrative is still fluid and prone to sharp shifts.”
Fiscal Risks and Fed Policy Expectations Keep Gold Supported
Despite recent selling pressure, gold remains underpinned by concerns over U.S. fiscal policy and growing expectations of monetary easing. Trump’s recently passed “Big, Beautiful Bill”, a sweeping tax and spending plan projected to add $4 trillion to the federal deficit over the next decade, has reignited debate over sovereign debt sustainability.
At the same time, signs of easing inflation in the U.S. have strengthened market expectations that the Federal Reserve will move to cut rates twice before the end of 2025. Traders now widely anticipate two 25 basis point rate cuts, which has weighed on the USD and could bolster gold in the medium term.
“Lower rates diminish the opportunity cost of holding non-yielding assets like gold, making it relatively more attractive,” said a senior FX strategist.
Geopolitical Risks Lend Additional Support
The global geopolitical backdrop remains volatile:
Russia launched its largest aerial assault on Ukraine since the February 2022 invasion.
In response, Trump called President Vladimir Putin “crazy” and suggested additional sanctions may be forthcoming.
Meanwhile, Israeli airstrikes on Gaza persist, adding to global risk sentiment.
These developments reinforce gold’s role as a geopolitical hedge, and could limit downside as investors weigh escalating tensions.
Key Data Ahead: FOMC Minutes, GDP, and PCE
Market participants are eyeing a busy week of U.S. economic data that could define the next leg of gold’s movement:
Tuesday: Durable Goods Orders, CB Consumer Confidence Index
Wednesday: FOMC Meeting Minutes
Thursday: Preliminary Q1 GDP
Friday: Core PCE Price Index — the Fed‘s preferred inflation gauge
These releases will offer critical insight into the Fed’s policy stance and the broader economic outlook, potentially sparking volatility in XAU/USD.
Technical Outlook: Consolidation or Breakdown?
Gold’s recent retracement places it near the 100-period SMA on the 4-hour chart, while a trend-line support breakdown appears to be in play. A sustained move below $3,300 could open the door to deeper losses, though support remains at the $3,250-$3,260 zone. Resistance is likely around the recent high near $3,433.
Bottom Line
While gold is currently facing headwinds from a rebounding dollar and positive risk tone, fiscal risks, rate cut expectations, and geopolitical tensions continue to provide a solid floor. The near-term outlook hinges on this week’s U.S. data and Fed communications, which could determine whether gold resumes its uptrend or continues its corrective phase.
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