Gold Weekly Forecast: Technical pressure builds up as geopolitics remain in spotlight
- Gold registered its largest one-week loss of the year.
- Easing geopolitical tensions caused Gold to lose interest as a safe haven.
- The technical outlook points to a bearish tilt in the near term.
Gold (XAU/USD) fell to its lowest level in over a month below $3,200 after starting the week under heavy bearish pressure. In the absence of high-impact data releases, geopolitical headlines could continue to influence Gold’s valuation in the near term.
Gold drops sharply after US-China trade deal
Gold turned south in the Asian session on Monday as risk flows dominated the action at the weekly opening. Following the first round of official talks between representatives from China and the United States (US) in Switzerland, US Treasury Secretary Scott Bessent said over the weekend that they had "productive and constructive" discussions, while China's Vice Premier He Lifeng described the talks as "in-depth" and “candid.” In the European morning, Bessent held a press conference to announce that they have agreed to lower reciprocal tariffs by 115% and to pause them for 90 days. Additionally, the India-Pakistan conflict de-escalated after both sides agreed to a ceasefire. Gold extended its slide following these developments and lost more than 2.5% on a daily basis.
After soft inflation data, the US Dollar (USD) lost its strength on Tuesday and helped XAU/USD find a foothold. The data published by the Bureau of Labor Statistics showed that the Consumer Price Index (CPI) and the core CPI rose 0.2% on a monthly basis in April, coming in below the market expectation of a 0.3% increase for both.
Gold came under renewed selling pressure in the second half of the week and touched its lowest level in over a month at $3,120 early Thursday as geopolitical tensions continued to ease. US President Donald Trump said that the US was getting very close to securing a nuclear deal with Iran. Additionally, Russia agreed to hold direct talks with Ukraine in Türkiye. Russia’s top negotiator Vladimir Medinsky said Moscow was aiming for a “long-term and lasting peace.” Later in the day, XAU/USD regained its traction and closed the day in the positive territory as the US data showed that the annual producer inflation, as measured by the change in the Producer Price Index (PPI), dropped to 2.4% in April from 2.7% in March, causing the USD to weaken.
Speaking in Abu Dhabi on Friday, President Trump said that his officials will soon send letters out to countries for trade deals. In the American session, the data from the US showed that the University of Michigan's Consumer Sentiment Index declined to 50.8 in May's flash estimate from 52.2. The one-year Consumer Inflation Expectation component of the survey rose to 7.3% from 6.5%. Gold failed to gain traction heading into the weekend and remained in the lower half of its weekly range below $3,200.
Fed stance, geopolitical developments to drive Gold’s price action
The US economic calendar won’t offer high-tier data releases in the first half of the week. On Thursday, S&P Global will publish the preliminary Manufacturing and Services Purchasing Managers Index (PMI) data for May. In case both prints come in below 50 and reflect a contraction in the private sector’s business activity, the USD could come under selling pressure with the immediate reaction and allow XAU/USD to gain traction.
Several Federal Reserve (Fed) policymakers will be delivering speeches throughout the week. On Friday, Atlanta Fed President Raphael Bostic said that he was expecting the Fed to cut the policy rate just once this year because of uncertainty. In case Fed officials echo the same sentiment, markets could see this as a sign pointing to a hawkish change in June’s revised Summary of Economic Projections. In this scenario, the USD could gather strength and drag XAU/USD lower. According to the CME FedWatch Tool, markets are currently pricing in about an 80% probability of the Fed lowering the policy rate at least twice in 2025.
Needless to say, investors will continue to scrutinize geopolitical developments. In case Russia and Ukraine move closer toward a peace deal, Gold could have a hard time attracting buyers. On the other hand, a deepening crisis in the Middle East, which could potentially cause a deterioration in US-Israel relations, could support the precious metal. President Trump said he did not consult Israel in the decision to recognize Syria's new government and said that they have to help Palestinians and the starving people in Gaza.
Gold technical analysis
The Relative Strength Index (RSI) indicator on the daily chart dropped below 50, and Gold broke below the lower limit of the ascending regression channel coming from December, pointing to a buildup of bearish momentum.
On the downside, $3,160 (50-day Simple Moving Average (SMA), Fibonacci 38.2% retracement level of the five-month-old uptrend) aligns as immediate support. In case Gold falls below this level and starts using it as resistance, $3,045 (Fibonacci 50% retracement) could be seen as the next support level before $3,000-$2,980 (psychological level, 100-day SMA).
Looking north, the first resistance area could be spotted at $3,290-$3,300 (Fibonacci 23.6% retracement, round level, 20-day SMA) ahead of $3,360 (static level) and $3,430 (static level).
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
