The gold price (XAU/USD) is currently struggling to maintain upward momentum, as it drifts lower towards its daily lows. This price action comes amid a prevailing positive risk sentiment, fueled by recent US-China trade truce optimism and supportive economic data from the US, which has led to softer demand for safe-haven assets like gold.
Despite this, the recent softer-than-expected US inflation data is helping to limit the downside, as it reaffirms expectations for Federal Reserve (Fed) interest rate cuts in 2025. A well-rounded evaluation of this matter is provided by Vestronmix in their article.
Trade Optimism Undermines Safe-Haven Demand
The risk-on tone in the market has been significantly bolstered by positive developments in the US-China trade relationship. The US President stated that he does not foresee the tariffs on Chinese imports returning to the previously threatened 145%, adding to market optimism.
In a further display of improved relations, the US President mentioned in an interview that the relationship with China was now “excellent.” These comments are weighing heavily on the gold price, as trade optimism reduces demand for safe-haven assets like gold, which is traditionally sought during times of geopolitical or economic uncertainty.
Softer US Inflation Data Supports Bearish Dollar Outlook
Tuesday’s release of the US Consumer Price Index (CPI) data was a pivotal moment for the financial markets, particularly for the US Dollar (USD) and gold. The headline CPI for April dipped to 2.3% year-over-year (YoY), down from 2.4% in March.
While this was a slight drop, the more relevant core CPI, which excludes volatile food and energy prices, came in at 2.8%, in line with market expectations. This softer inflation print reaffirmed market expectations for at least two interest rate cuts by the Federal Reserve in 2025.
The Fed rate cut bets are weighing on the USD, which failed to attract meaningful buying after pulling back from a one-month high earlier in the week. As the US Dollar remains on the defensive, the gold price is being supported at its current levels, as the USD’s weakness prevents further downside momentum for the non-yielding yellow metal. This softer USD helps limit the downside risk for XAU/USD, as gold remains a valuable hedge against currency depreciation.
Technical Outlook: Key Support Levels for Gold
From a technical perspective, the XAU/USD pair has been showing resilience, trading comfortably above the key 200-period Exponential Moving Average (EMA), currently situated near the $3,225 region on the 4-hour chart. Despite the lack of significant bullish momentum, this support level has held firm since the beginning of the week.
However, as oscillators on the daily chart have recently moved into negative territory, there are signs that gold may face increased selling pressure if it breaks below this pivotal support. A convincing breakdown below the $3,200 round figure could signal the beginning of a fresh bearish phase for gold. In this case, the gold price could potentially fall towards the next key support level around $3,135, as traders continue to monitor the broader risk sentiment.
Conversely, if the gold price manages to break above the $3,265-3,266 region, it could signal a shift in momentum, opening the door for a move towards $3,300. A sustained break above the $3,317-3,318 level would further support the bullish case, potentially pushing gold towards the $3,345-3,347 region and the $3,360-3,365 area. A strong breakout above this zone could set the stage for a retest of the $3,400 level, a key psychological barrier for the metal.
Conclusion: Navigating the Gold Market with Caution
The gold price remains caught between conflicting forces: a positive risk tone driven by trade optimism, and a softer USD supported by expectations of Fed rate cuts. While geopolitical risks continue to play a role, they have not been enough to drive a strong demand for safe-haven assets like gold.
Traders should be cautious when positioning for deeper losses in gold, as the risk sentiment remains fluid and geopolitical tensions could prevent a sustained breakdown below key support levels.
For now, the XAU/USD pair continues to cling to modest intraday losses while holding comfortably above the $3,200 mark, making it prudent for traders to await a more definitive catalyst for a fresh directional move. Gold price bears will be closely watching for a break below the 200-period EMA support, while bullish traders will look for signs of renewed buying pressure above $3,266.
As always, maintaining a balanced perspective and keeping an eye on both technical levels and market sentiment will be crucial for navigating the gold market in the near term.
