Gold Price Forecast: XAU/USD holds the key support as the Fed week kicks in

Gold price is holding onto its rebound above $3,250 early Monday as buyers return with a bang alongside uncertainty over potential trade deals between the US and its Asian trading partners.

Gold price finds demand on trade uncertainty, geopolitics

Despite China confirming on Friday that the US had reached out to them for trade negotiations and US President Donald Trump stating over the weekend that he would lower tariffs on Chinese imports ‘at some point’, uncertainty remains high over a thaw in US-Sino trade relations.

Additionally, doubts over a potential US-Japan trade deal heightened after Japanese Finance Minister Katsunobu Kato walked back comments last Friday that seemed to suggest Japan might threaten to sell some of its Treasury holdings as part of trade negotiations with the White House.

Fresh questions lingering on the trade front revive the selling interest in the US Dollar (USD), rescuing Gold buyers from a critical level. Further, the renewed USD weakness could be also linked to repositioning ahead of the US Federal Reserve (Fed) policy announcements on Wednesday.

Reuters reported that “many investors are still wagering on further dollar weakness with speculative short positions rising further in the latest week.”

The traditional safe-haven Gold price also draws support from intensifying geopolitical tensions in the Middle East and between Russia and Ukraine.

On Sunday, Israeli Prime Minister Benjamin Netanyahu vowed to retaliate against the Houthis after a missile fired by the group struck the grounds of Israel's main terminal of Ben Gurion airport. Later, the Houthis said they would impose "a comprehensive aerial blockade" on Israel by repeatedly targeting its airports, in response to Israeli military plans to expand operations in Gaza.

Meanwhile, Russian President Vladimir Putin said Russia has the strength and the means to bring the conflict in Ukraine to a “logical conclusion.” As it stands, Russia and Ukraine are at odds over competing ceasefire proposals.

Looking ahead, all eyes remain on any clarity on US trade talks and their impact on the USD performance, even as markets pare back June Fed interest rate cut expectations. Markets are now pricing in only a 37% chance of a Fed cut in June, down from 64% a month ago. Goldman Sachs and Barclays both shifted their cut calls to July from June.

Yet another stellar US Nonfarm Payrolls report helped calm fears over a potential recession in the United States (US) while reviving bets that the Fed could remain patient on the policy outlook, leaning hawkish at its policy meeting this week.

That said, trade headlines will continue to dominate and remain the primary market driver in the week ahead.

Gold price technical analysis: Daily chart

Gold price defended the critical 21-day Simple Moving Average (SMA) support, now at $3,242, rebounding following the downside break of a three-week-long rising channel last Wednesday.

The 14-day Relative Strength Index (RSI) points north while above the midline near 55.50, suggesting more room for recovery.

The latest upswing needs acceptance above the $3,300 barrier for Gold buyers to flex their muscles toward the channel support (now resistance) at $3,442.

Ahead of that, the $3,350 could be a tough nut to crack.

On the flip side, a failure to resist the aforesaid 21-day SMA at $3,242 on a daily closing basis, a fresh downside will open toward the $3,150 psychological level.

Further down, the 50-day SMA at $3,087 will be put to test.