On Monday, the gold market witnessed a continuation of its downward trend, with the price of gold (XAU/USD) attracting sellers for the third consecutive day. This decline comes amidst a positive risk tone in the global financial markets and a slight uptick in the US Dollar (USD), both of which are putting downward pressure on the precious metal.
Positive Risk Sentiment Dampens Gold’s Appeal
Reports indicating that US President Donald Trump’s reciprocal tariffs would be less extensive and stringent than initially anticipated have provided a boost to the global risk sentiment. This has led investors to shift their focus towards riskier assets, causing a decline in the demand for gold, which is traditionally considered a safe-haven asset. As a result, the gold price has struggled to build on the modest recovery it experienced on Friday, just below the psychologically significant $3,000 mark.
USD Recovery Adds to Gold’s Woes
In addition to the positive risk sentiment, the US Dollar has managed to maintain its modest recovery from a multi-month low. This has further weakened the appeal of gold, as a stronger dollar makes the precious metal more expensive for investors holding other currencies. However, expectations that the tariff-driven slowdown in the US economic activity could prompt the Federal Reserve (Fed) to resume its rate-cutting cycle have limited the upside potential for the dollar, preventing it from causing a more significant decline in the gold price.
Geopolitical Risks and Fed Rate Cut Bets Offer Support
Despite the current downward pressure on the gold price, there are several factors that could potentially provide support in the coming days. Geopolitical risks, such as the ongoing conflict in the Middle East, continue to simmer, with Israel’s heavy strikes in Gaza and the recent missile attacks by the Iran-backed Houthis in Yemen raising concerns about a further escalation of tensions. These geopolitical uncertainties could drive investors towards safe-haven assets like gold.
Furthermore, traders are still pricing in the possibility of the Fed cutting interest rates at its June, July, and October monetary policy meetings. Lower interest rates make non-yielding assets like gold more attractive, as they reduce the opportunity cost of holding gold. This, combined with the geopolitical risks, should act as a tailwind for the gold price and help limit any significant corrective slide.
Key Levels to Watch
From a technical perspective, the $3,000 mark remains a crucial level for the gold price. A decisive break below this level could trigger further selling, potentially dragging the price down towards the $2,982 – $2,978 region, and then towards the $2,956 – $2,954 support level. On the other hand, the all-time peak around the $3,057 – $3,058 zone, which was touched last week, could act as an immediate resistance level. If the gold price manages to 突破 this resistance and the daily Relative Strength Index (RSI) shows signs of a sustained upward trend from the overbought territory, it could signal a fresh bullish phase, potentially leading to an extension of the uptrend witnessed over the past three months.
Market Outlook and Upcoming Data
Traders are closely watching the release of flash global Purchasing Managers’ Index (PMI) data, which will provide insights into the health of the global economy. Any significant deviations from expectations could impact the risk sentiment and, in turn, the gold price. Additionally, the focus will be on the US Personal Consumption and Expenditure (PCE) Price Index, scheduled for release on Friday. This key inflation indicator could influence the Fed’s monetary policy decisions and have a significant impact on the gold market.
In conclusion, while the gold price remains under pressure in the short term, the combination of geopolitical risks and expectations of Fed rate cuts provides a degree of support. Investors will be closely monitoring key levels and economic data to gauge the future direction of the gold market.
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