Gold prices (XAU/USD) are struggling to build on their modest intraday gains during the early European session on Monday, although they are managing to stay above the three-week low reached on Friday. Market participants are factoring in the likelihood that the Federal Reserve will reduce interest rates by 0.25% twice before the end of this year, prompted by signs of weakening consumer sentiment. This expectation, however, has not been enough to strengthen the US Dollar (USD), which is still recovering from a two-month low reached last week. As a result, demand for the non-yielding yellow metal has revived.
In addition to this, growing concerns about the potential economic impact of US President Donald Trump’s trade tariffs, along with escalating geopolitical risks, have provided support for the safe-haven gold. However, the generally positive sentiment around equity markets has limited any significant upward movement for the precious metal. Market participants appear hesitant to make new directional bets ahead of key US economic data releases this week, urging caution before confirming whether the pullback from gold’s all-time high has run its course.
Economic Data and Trade Concerns Impacting Gold Price
On Friday, the US Bureau of Economic Analysis revealed that the Personal Consumption Expenditures (PCE) Price Index rose by 0.3% in January and increased by 2.5% over the past year, slightly lower than the 2.6% growth in December. The core PCE Price Index, which excludes volatile food and energy prices, also gained 0.3% last month, marking a deceleration to 2.6% year-over-year, down from 2.9% in December. The report also highlighted an unexpected drop in US consumer spending by 0.2% in January, the first decline since March 2023, raising concerns about the nation’s economic outlook.
These concerns have fueled market speculation that the Federal Reserve might resume interest rate cuts in the coming months. According to the CME Group’s FedWatch Tool, market participants are pricing in a 50% chance of a rate cut at the June meeting, followed by another in September. Additionally, fears surrounding President Trump’s trade tariffs, including those targeting Canada, Mexico, and China, have further dampened the outlook for consumer spending. These trade uncertainties are undermining the US Dollar’s attempt to recover and benefiting the safe-haven gold market.
Trump confirmed that tariffs on imports from Canada and Mexico will begin on Tuesday, and announced plans to double the existing 10% tariff on Chinese imports. These moves have raised the risk of a global trade war, which is seen as a positive development for gold prices as investors seek safety in the yellow metal.
Technical Outlook: Key Levels in Play
From a technical standpoint, gold’s recent breakdown below the 23.6% Fibonacci retracement level of the December-February rally is seen as a significant trigger for sellers. Additionally, oscillators on the daily chart are showing negative momentum, reinforcing the likelihood of further downside movement. As a result, any upward movement in gold prices may still be seen as a selling opportunity, with resistance likely near the $2,885 region, followed by the $2,900 mark. A move above these levels could push prices towards the $2,934 resistance, leading up to the all-time high of around $2,956.
On the downside, Friday’s swing low near the $2,833-2,832 zone is expected to provide immediate support. A break below this level could see prices testing the 38.2% Fibonacci retracement level around $2,815-$2,810. A further decline below $2,800 would signal that the commodity has likely topped out and could lead to deeper losses.
Conclusion
As gold prices face mounting pressure from a mixed economic outlook and persistent trade risks, the precious metal’s ability to maintain its value hinges on the Federal Reserve’s policy decisions and the broader geopolitical climate. While safe-haven demand is supporting gold in the face of trade uncertainties, the positive sentiment in equity markets and the upcoming key US economic data releases may limit significant upside for the metal in the near term. Traders will likely remain cautious, awaiting clearer signals from the data to determine the next direction for gold.