Gold Weekly Forecast: Buyers hesitate despite escalating geopolitical tensions
- Gold erased a large part of its gains following a bullish opening to the week.
- Escalating geopolitical tensions helped Gold keep its footing.
- Headlines from US-China trade talks and US inflation data could trigger the next big action.
Gold (XAU/USD) started the week on a bullish note and registered impressive gains on Monday and Tuesday before reversing its direction and settling above $3,300 in the second half of the week. Investors will scrutinize headlines coming out of the first round of official trade talks between China and the United States (US) and pay close attention to April inflation data from the US.
Gold rises on escalating geopolitical tensions, turns south after Fed
Gold benefited from safe-haven flows on Monday and gained nearly 3% as geopolitical tensions heightened over the weekend. Yemen's Iran-aligned Houthis claimed responsibility for the missile strike near Israel’s Ben Gurion Airport on Sunday. Israeli Prime Minister Benjamin Netanyahu vowed to respond to the attack and said that Iran would also face consequences. Meanwhile, the conflict between India and Pakistan showed no signs of de-escalation.
As the US Dollar (USD) struggled to find demand ahead of the Federal Reserve’s (Fed) monetary policy announcements, XAU/USD extended its rally on Tuesday and climbed above $3,400 for the first time in two weeks. Later in the American session, Washington confirmed that US Treasury Secretary Scott Bessent and chief trade negotiator Jamieson Greer will meet China's economic tsar He Lifeng in Geneva this Saturday. This development revived optimism about a US-China trade agreement and caused Gold to turn south during the Asian trading hours on Wednesday.
Following the May policy meeting, the Fed decided to leave the policy rate unchanged at the 4.25%-4.5% range, as widely anticipated. In the policy statement, the US central bank noted that the economic outlook uncertainty has increased further. While speaking during the post-meeting press conference, Fed Chairman Jerome Powell noted that near-term inflation expectations have moved up because of tariffs and added that it's time for them to wait before adjusting the policy. The CME FedWatch Tool’s probability of a 25 basis points (bps) rate cut in June dropped below 20% after the Fed event from above 50% on May 1. In turn, the USD gathered strength against its rivals, causing XAU/USD to lose nearly 2% on the day.
News of a trade deal between the UK and the US helped the risk mood remain upbeat and forced Gold to stay on the back foot on Thursday. While outlining the details of the agreement in a press conference on Thursday, US President Donald Trump said that tariffs with China could be lowered.
On a concerning note, the conflict between India and Pakistan deepened in the second half of the week, helping Gold find support. According to the BBC, India accused Pakistan of launching waves of drones and missiles at three military bases in Indian territory and Indian-administered Kashmir, while Pakistan said Indian air strikes and cross-border fires have killed 36 people and injured 57 more in Pakistan and Pakistan-administered Kashmir.
In a post published on Truth Social on Friday, US President Donald Trump said 80% tariffs on Chinese goods "seems right." In other news, citing two sources familiar with discussions, Reuters reported that India has offered to slash its tariff gap with the US to less than 4% from nearly 13% now, in exchange for an exemption from current tariffs and any potential tariff hikes in the future.
Gold investors await US-China trade news, US inflation data
Gold could start the week with a gap, depending on headlines from the US-China trade talks. In case sides agree to pause tariffs on some products and note their willingness to continue to engage in further discussions to resolve the trade dispute, Gold could come under bearish pressure early Monday. On the flip side, Gold could turn north if the US and China talks fail to deliver any encouraging headlines hinting at de-escalation.
Meanwhile, it could be bearish for Gold if the US reaches trade agreements with other countries. US Commerce Secretary Howard Lutnick said recently that they are going to roll out deals over the next month and noted that they are working on a trade accord with a big country from Asia.
On Tuesday, the US Bureau of Labor Statistics will publish the Consumer Price Index (CPI) data for April. On a monthly basis, the CPI and the core CPI are both forecast to rise by 0.3%. In case the core CPI increases at a stronger pace than expected, the immediate market reaction could support the USD, weighing on Gold. Conversely, a core CPI reading of 0.2% or lower could limit the USD’s gains and help XAU/USD edge higher.
Market participants will continue to pay close attention to geopolitical developments. Gold could capitalize on safe-haven demand in case India-Pakistan or Israel-Iran conflicts intensify further.
Other data releases from the US will include April Retail Sales on Thursday and the University of Michigan’s preliminary Consumer Sentiment Index for May. Nevertheless, these data are unlikely to have a lasting impact on Gold’s valuation.
Gold technical analysis
The Relative Strength Index (RSI) indicator on the daily chart holds slightly above 50, and Gold is yet to make a daily close below the 20-day Simple Moving Average (SMA) after briefly dipping below this level on Thursday and early Friday, reflecting sellers’ hesitancy.
The mid-point of the ascending regression channel coming from December aligns as a pivot level at $3,330. In case Gold stabilizes above this level and confirms it as support, technical buyers could show interest. In this scenario, $3,400 (static level, round level) could be seen as the next resistance before $3,460 (upper limit of the ascending channel).
On the downside, the first support area could be seen at $3,290-$3,300 (Fibonacci 23.6% retracement, round level) ahead of $3,230 (lower limit of the ascending channel) and $3,200 (static level).
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
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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.
