Gold prices (XAU/USD) maintained a firm tone above the $3,000 mark during the first half of the European session on Tuesday, driven by persistent concerns over the escalation of a global trade war. These fears have bolstered demand for safe-haven assets, such as gold. Additionally, growing expectations that tariffs imposed by the United States could lead to a slowdown in the U.S. economy have further strengthened the appeal of the non-yielding metal.
Concerns that a potential economic downturn could prompt the Federal Reserve (Fed) to implement more aggressive rate cuts this year are also supportive of gold prices. Despite these factors, the U.S. dollar (USD) has been unable to capitalize on its recent recovery from a multi-month low, further providing tailwinds for gold.
However, the broader market sentiment has shown a positive turn, which has created some resistance for gold prices. Additionally, traders are adopting a cautious stance ahead of key upcoming data, including the Federal Open Market Committee (FOMC) meeting minutes on Wednesday and the U.S. consumer inflation data set for release on Thursday.
Gold Price Underpinned by Economic and Political Uncertainty
The gold market continues to be supported by a range of factors. Investors are increasingly concerned that U.S. President Donald Trump’s latest trade tariffs could escalate into a full-scale global trade war, undermining the world economy. These anxieties, combined with renewed selling pressure on the U.S. dollar, have revived demand for gold during the Asian trading session on Tuesday.
Market participants now appear convinced that the Federal Reserve will resume its rate-cutting cycle soon, driven by worries about the economic impact of Trump’s aggressive trade policies. Trump himself has called on the Fed to reduce interest rates swiftly, claiming that the U.S. economy is in a strong position to withstand such measures.
Fed officials have expressed differing views, however. Governor Adriana Kugler stated that the central bank’s priority should remain controlling inflation, noting that short-term inflation expectations have risen but are still well within target. On the other hand, Chicago Fed President Austan Goolsbee warned that a trade war could shift consumer behavior and lead to inflationary pressures and supply chain disruptions.
Despite these concerns, market expectations suggest the Fed could lower borrowing costs as soon as its June policy meeting, with at least four rate cuts anticipated by the end of the year. This outlook has prevented the U.S. dollar from gaining much momentum and has continued to benefit gold, which is unaffected by interest rate moves due to its non-yielding nature.
Market Focus on Upcoming Economic Data
Traders are now turning their attention to several key events that will provide further clarity on the Fed’s policy trajectory. The minutes from the most recent Fed policy meeting, scheduled for release on Wednesday, are expected to offer valuable insights. Additionally, the release of the U.S. Consumer Price Index (CPI) on Thursday and the Producer Price Index (PPI) on Friday will provide further clues about inflation trends and future rate cuts. These data points are likely to influence both the U.S. dollar and gold prices.
Gold Technical Outlook: Support and Resistance Levels
From a technical standpoint, the gold market shows mixed signals. Oscillators on the daily chart have started to show signs of bearish momentum. However, the metal’s resilience near the 61.8% Fibonacci retracement level from the February-April rally indicates that gold could continue to find support around Monday’s low, near $2,957-2,956. This level is closely followed by the 50-day Simple Moving Average (SMA), which currently sits near $2,948-2,947.
A decisive break below these levels could pave the way for a continuation of the recent sharp pullback from last Thursday’s all-time high. On the other hand, any upward movement is likely to face resistance around the $3,020 mark. Should gold surpass this level, it could extend its rally towards the $3,055-3,056 zone. Further bullish momentum could push prices toward the $3,100 mark, with intermediate resistance expected around $3,075-3,080.
Conclusion
In summary, gold prices remain well-supported above the $3,000 level, driven by concerns over a potential global trade war and the possibility of more aggressive rate cuts by the Federal Reserve. While the market sentiment has shown signs of improvement, uncertainty surrounding upcoming economic data continues to weigh on trader sentiment. The technical outlook remains mixed, with gold traders closely monitoring key support and resistance levels as they await more clarity on the Fed’s next moves.