The Gold price (XAU/USD) has staged a mild recovery in early European trading on Tuesday, climbing to around $3,255. This rebound follows a volatile session as investor sentiment adjusts to fresh geopolitical developments, the temporary de-escalation in US-China trade tensions, and the highly anticipated release of the US April Consumer Price Index (CPI) report due later in the day.
Monovex’s team of brokers delivers a comprehensive exploration of this topic in their article.
US-China Trade War Eases: Temporary Lift for Risk Appetite
Gold’s traditional safe-haven appeal is facing pressure from an improved risk sentiment environment. On Monday, the United States and China announced a 90-day truce in their ongoing trade dispute. The deal involves a mutual reduction of tariffs—the US will slash tariffs on Chinese imports from 145% to 30%, while China will reduce duties on US goods from 125% to 10%.
Further easing comes from reports that the US “de minimis” tariff rate on low-value Chinese shipments will fall to 54% from 120%, although a flat fee of $100 remains in place. These developments have bolstered equity markets and weakened the short-term appeal of non-yielding assets like gold.
According to Giovanni Staunovo, analyst at UBS, “The de-escalation of tensions between China and the US is reducing the demand for safe haven assets like gold.”
CPI Data in Focus: Monetary Policy Expectations Driving Volatility
While the trade agreement has improved sentiment, gold traders are primarily focused on today’s US inflation data. The headline CPI for April is projected to rise 2.4% year-over-year (YoY), while the core CPI, excluding food and energy, is expected to rise by 2.8% YoY.
These figures are crucial for shaping expectations around the US Federal Reserve’s monetary policy. Swap markets currently price in a 25 basis point (bps) rate cut in September, with two additional cuts likely by year-end. A stronger-than-expected CPI could dampen these dovish expectations, while a weaker print would likely accelerate rate-cut bets—an outcome that could support gold prices.
Last week, market pricing suggested as many as three rate cuts in 2025, with the first potentially arriving as early as July. The outcome of today’s CPI will be pivotal in validating or revising that outlook.
Geopolitical Backdrop Still Provides Support for Gold
Although US-China trade progress has temporarily eased safe-haven flows, geopolitical risk remains an underlying tailwind for gold. On Monday, India’s Prime Minister Narendra Modi stated that military operations against Pakistan are only in abeyance, suggesting possible future escalations.
Simultaneously, Ukrainian President Volodymyr Zelensky signaled readiness to meet Russian President Vladimir Putin, following pressure from the US President to accept peace talks in Turkey. Any breakdown in these fragile diplomatic efforts could lead to renewed demand for gold.
Market Positioning and ETF Flows Reflect Cautious Optimism
Beyond spot pricing, market positioning in gold-related Exchange-Traded Funds (ETFs) indicates a cautiously optimistic stance among institutional investors. Data from Bloomberg shows a modest uptick in gold ETF holdings over the past week, breaking a multi-week streak of outflows. This suggests that portfolio managers are beginning to hedge against potential inflation surprises or unexpected geopolitical escalations.
While volumes remain below peak levels, the shift points to growing interest in defensive allocations as macroeconomic uncertainty looms. Should today’s CPI print support a dovish narrative, ETF demand may continue to strengthen, reinforcing the underlying bullish structure in gold.
Technical Outlook: Gold Price Maintains Constructive Tone
From a technical analysis perspective, the gold price maintains a constructive tone. On the daily chart, XAU/USD continues to hold above the 100-day Exponential Moving Average (EMA), a critical indicator of medium-term momentum. However, the 14-day Relative Strength Index (RSI) sits below the 50 level, signaling potential for short-term consolidation or a temporary sell-off.
Key Resistance Levels
- $3,347: High of May 9; initial upside barrier.
- $3,432: Upper boundary of the Bollinger Band; breakout could attract momentum buyers.
- $3,500: All-time high; major psychological and technical resistance.
Key Support Levels
- $3,200: Immediate psychological support.
- $3,142: High from April 2; additional downside filter.
The price action remains bullishly biased, especially if today’s US CPI data meets or underperforms expectations, reinforcing the prospect of Fed rate cuts and keeping real yields under pressure—a favorable condition for gold bulls.
Conclusion
The rebound in gold price to $3,255 reflects a complex mix of improving trade sentiment, anticipation around US inflation data, and lingering geopolitical uncertainty. While the temporary tariff truce between the US and China has cooled safe-haven demand, the broader macroeconomic narrative, including potential Fed policy easing and fragile global tensions, keeps upside potential alive.
Traders and investors will closely scrutinize today’s CPI data for clues about the next moves by the Federal Reserve, with the outcome likely to dictate gold’s direction in the near term. Until then, the market may remain in wait-and-see mode, with the precious metal consolidating around current levels.
