Gold surges toward $3,400 amid US Dollar weakness and fiscal crisis

Gold (XAU/USD) price continue its bullish streak, extending gains from the bottom of $3,123. Gold climbed to a near two-week high, reaching a key resistance level. This surge is driven by heightened demand for safe-haven assets amid escalating fiscal concerns in the US and rising global geopolitical tensions. Investors are reacting to a mix of credit downgrades, poor bond auction results, and a weaker US Dollar. All these factors are creating a favorable environment for gold prices in the near term.

US fiscal crisis and geopolitical risks drive Gold price rally

The fundamental backdrop for gold remains robust. One of the primary catalysts is the downgrade of the US sovereign credit rating by Moody’s. This decision has shaken investor confidence and increased demand for safer investments like gold. At the same time, President Donald Trump’s tax-cut and spending bill has reintroduced fears of escalating US debt. Analysts expect this bill to add $3 to $5 trillion to the national deficit. Such fiscal strain undermines the US Dollar’s strength, further boosting gold.

Another factor contributing to gold’s rise is the disappointing 20-year US Treasury bond auction. Weak demand signals declining investor confidence in long-term US assets. This reflects fears over the country’s budget outlook and raises concerns about its ability to manage its debt.

Moreover, ongoing geopolitical tensions are feeding into the gold rally. US-China trade relations have deteriorated again, with the US restricting advanced chip use and China accusing the US of economic bullying. These tensions are making global markets more volatile, prompting investors to seek the safety of gold.

Additionally, there is growing speculation that the Federal Reserve will cut interest rates again in 2025. Slowing economic growth and easing inflation support this outlook. As the Fed shifts toward a more dovish stance, the Dollar weakens, making gold even more attractive to investors globally.

Gold price eyes breakout from descending channel as bulls regain control

The gold chart below shows a bullish picture, as gold has been trading within a well-defined descending channel since mid-April. However, the price action this week signals a potential breakout. Gold is currently testing the upper boundary of the descending channel around $3,340.

This breakout attempt is crucial. A successful close above the channel would confirm a reversal from the recent downtrend and suggest continued bullish momentum. The price also bounced off strong support near $3,120, reinforcing bullish sentiment.

Daily candlestick patterns show consistent buying interest. Higher lows and strong green candles indicate accumulation. The recent rally toward the upper channel line suggests that bulls are regaining control. If the price sustains above this resistance, the next target could be near the $3,400 level and potentially higher, depending on macroeconomic developments.

Traders should also monitor volume and momentum indicators for confirmation. A rise in buying volume alongside a channel breakout would further support the case for a continued uptrend.

Outlook: Gold set to extend rally if breakout develops

Gold continues to attract buyers as fiscal concerns, geopolitical tensions, and a weaker US Dollar fuel demand for safe-haven assets. Strong fundamentals and bullish technical signals support the upward momentum. The recent breakout attempt from the descending channel reflects growing investor confidence. If gold holds above key resistance, the rally could extend further. Market participants should watch upcoming data and central bank signals for direction.

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