- Gold prices are experiencing significant selling pressure for the third consecutive trading day, influenced by a confluence of market dynamics.
- Emerging signs of de-escalation in US-China trade relations, coupled with a modest strengthening of the US Dollar, are exerting downward pressure on the precious metal.
- Prevailing expectations of aggressive interest rate cuts by the Federal Reserve are expected to limit the US Dollar’s upside potential, thereby cushioning potential losses for the XAU/USD pair.
The price of gold (XAU/USD) is maintaining its downward trajectory in the first half of the European trading session, currently hovering around the $3,232 level, slightly above the two-week low reached earlier today. The overall risk appetite in the market remains robust, buoyed by indications of easing trade tensions between the United States and China, the world’s two largest economies. Furthermore, continued buying interest in the US Dollar (USD) is contributing to the shift away from gold, a traditional safe-haven asset, marking the third consecutive day of declines.
Concurrently, an unexpected contraction in the US Gross Domestic Product (GDP) and emerging signs of moderating inflationary pressures have reinforced market expectations for a more accommodative monetary policy stance by the Federal Reserve (Fed). The latest GDP figures showed a contraction of 0.3% in the first quarter of 2025. This development may restrain any further appreciation of the USD and provide some support for the non-yielding gold price. Consequently, it would be prudent to await further confirmation of selling momentum before definitively declaring a near-term peak for the XAU/USD pair and positioning for a continuation of the recent pullback from the $3,500 level, which represents the all-time high.
Daily Digest Market Movers: Gold price bulls remain sidelined amid positive risk sentiment and moderate USD strength
- US President Donald Trump stated earlier today that there is a “very good probability we’ll reach a deal with China,” and further added that there are “potential” trade agreements under consideration with India, South Korea, and Japan. These remarks are contributing to the prevailing optimism and further bolstering investor confidence in the global economic outlook.
- The US Dollar is exhibiting upward momentum in response to President Trump’s comments, exerting downward pressure on the safe-haven gold price for the third consecutive day. A breach of the $3,265-$3,260 pivotal support level is triggering technical selling, further contributing to the intraday decline to a two-week low.
- Automatic Data Processing (ADP) reported on Wednesday that private sector employment increased by 62,000 in April. This figure represents a significant decrease from the 147,000 increase (revised from 155,000) recorded in March and fell considerably short of the market consensus forecast of 108,000.
- Adding to the economic concerns, the preliminary estimates from the Bureau of Economic Analysis indicate that the US economy contracted at an annualized rate of 0.3% during the first quarter of 2025, following a robust growth rate of 2.4% in the preceding quarter. This data is reigniting concerns about a potential recession in the United States.
- In addition, the US Personal Consumption Expenditures (PCE) Price Index moderated to a 2.3% year-over-year rate in March, down from 2.5% in the previous month. Furthermore, the core PCE Price Index, which excludes the volatile food and energy sectors, increased by 2.6% compared to 3% in February, signaling a reduction in inflationary pressures.
- The disappointing US macroeconomic data is reinforcing expectations that the Federal Reserve will resume its interest rate reduction cycle as early as June. Market participants are currently pricing in the possibility that the US central bank will reduce borrowing costs by a total of 100 basis points by the end of the year. This anticipated monetary easing is expected to limit the upside for the USD and provide support for the non-yielding gold.
- On the geopolitical front, Kremlin spokesperson Dmitry Peskov stated on Wednesday that Russia possesses the capability to mobilize for war on a scale comparable to the Soviet Union during World War II, if deemed necessary. Furthermore, a Russian drone strike resulted in the deaths of two civilians and injuries to five others in southern Ukraine.
- These geopolitical tensions may further contribute to limiting the downside for the XAU/USD pair. Market participants are now awaiting key US macroeconomic data releases, including the ISM Manufacturing PMI later today and the Nonfarm Payrolls report on Friday. These data points will provide further insights into the Federal Reserve’s potential rate-cut trajectory and influence the price of gold.
Gold price bears maintain control below the critical $3,265-3,260 support level
From a technical analysis perspective, the overnight break below the 38.2% Fibonacci retracement level of the recent upward move from the mid-$2,900s region, representing the monthly swing low, and the $3,265-$3,260 level, is considered a significant trigger for bearish sentiment. However, oscillators on the daily chart, while showing a decrease in positive momentum, have not yet confirmed the negative outlook. Therefore, it is advisable to await a confirmed break below the 50% Fibonacci level, around the $3,229-$3,228 area, before anticipating further declines. The gold price could then accelerate its descent towards the $3,200 psychological level, potentially reaching the 61.8% Fibonacci level around the $3,160 zone.
Conversely, any attempt at a recovery may encounter resistance near the previously mentioned support level, now acting as resistance, around the $3,260-$3,265 region. This is followed by the 38.2% Fibonacci level, just ahead of the $3,300 mark. A successful breach of this level could trigger a short-covering rally, potentially lifting the gold price towards the $3,348-$3,350 supply zone. Sustained buying pressure, leading to a subsequent move beyond the $3,367-$3,368 region (the 23.6% Fibonacci level), would suggest that the recent corrective pullback has concluded. The XAU/USD pair could then aim to reclaim the $3,400 level and extend the momentum towards the $3,425-3,427 intermediate resistance before attempting to surpass the $3,500 psychological barrier.
Fed FAQs
Monetary policy in the United States is formulated and implemented by the Federal Reserve (Fed). The Fed operates under a dual mandate: to maintain price stability and to promote full employment. The primary instrument used to achieve these objectives is the adjustment of interest rates. When prices are rising too rapidly, and inflation exceeds the Fed’s target of 2%, the central bank raises interest rates, thereby increasing borrowing costs throughout the economy. This typically leads to a stronger US Dollar (USD) as it enhances the attractiveness of the US as a destination for international investors seeking higher returns. Conversely, when inflation falls below 2% or the unemployment rate is excessively high, the Fed may lower interest rates to stimulate borrowing and economic activity, which can exert downward pressure on the Greenback.
The Federal Reserve (Fed) convenes eight policy meetings annually, during which the Federal Open Market Committee (FOMC) evaluates prevailing economic conditions and makes decisions regarding monetary policy. The FOMC comprises twelve voting members: the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve on a rotating basis for one-year terms.
In situations of extreme economic distress, the Federal Reserve may resort to a policy known as Quantitative Easing (QE). QE involves the Fed significantly expanding the flow of credit within a struggling financial system. It represents a non-standard policy measure employed during crises or periods of exceptionally low inflation. QE was the Fed’s primary tool during the Great Financial Crisis of 2008. It entails the Fed creating new Dollars and using them to purchase high-grade bonds from financial institutions. QE typically weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE. It occurs when the Federal Reserve ceases purchasing bonds from financial institutions and refrains from reinvesting the principal payments from maturing bonds to acquire new bonds. This policy is generally considered positive for the value of the US Dollar.
