Gold prices retreated slightly below the $3,400 mark on Tuesday, pressured by a resurgent US Dollar despite ongoing geopolitical tensions. The precious metal’s safe-haven appeal amid escalating Israel-Iran conflict continues to support underlying demand. At the time of writing, XAU/USD trades near $3,380, down 0.05%.
Market Sentiment and Geopolitical Risks
Investor mood remains cautious amid deteriorating risk appetite. However, gold has struggled to rally as the US Dollar Index (DXY)—which tracks the greenback against six major currencies—rose by 0.46% to 98.58. Heightened tensions in the Middle East intensified after former US President Donald Trump abruptly left the G7 summit in Canada, urging an immediate evacuation of Tehran. Reports indicate Trump is seriously considering military action alongside Israel against Iran, amplifying geopolitical uncertainty.
US Economic Data and Fed Outlook
Despite geopolitical risks, weaker US economic data have tempered the dollar’s strength. May’s US retail sales showed a mixed picture with a 0.9% monthly decline, dragged down by a slump in automobile sales, although year-on-year sales rose 3.3%. Industrial production also contracted by 0.2%, missing expectations of a modest increase.
Markets now turn their focus to the Federal Reserve’s upcoming policy announcement. Fed Chair Jerome Powell and other officials are expected to maintain current interest rates but may provide updated economic forecasts signaling the policy path for the remainder of 2025. Analysts, including BBH’s Win Thin, anticipate a dovish tilt but caution that a shift to a more hawkish stance remains possible depending on Fed “dot plot” adjustments.
Market Movers and Inflation Outlook
The US inflation environment continues to suggest room for policy easing, which generally benefits gold as a non-yielding asset. Treasury yields declined, with the 10-year yield dropping nearly 5 basis points to 4.403%, and real yields falling in tandem.
Supporting this view, the World Gold Council’s latest central bank survey revealed 95% of respondents expect an increase in gold reserves over the next year, underscoring ongoing institutional demand.
Technical Outlook: Consolidation Near $3,400
Technically, gold maintains its uptrend, characterized by higher highs and higher lows. Momentum indicators, such as the Relative Strength Index (RSI), remain bullish, suggesting any dips could offer buying opportunities.
Key resistance levels are $3,400, followed by $3,450 and the record high near $3,500. Should gold fail to hold above $3,400, downside support lies at $3,350, the 50-day Simple Moving Average near $3,293, and further down at $3,167—the April 3 high now acting as support.
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