Gold prices (XAU/USD) edged lower to around $3,235 during the early Asian session on Tuesday, as the precious metal remains under pressure. A stronger US Dollar, rising US yields, and positive market sentiment following the announcement of a temporary US-China trade deal have all contributed to the decline in gold’s appeal.
US-China Trade Deal Dampens Safe-Haven Demand
The announcement over the weekend that the United States and China had reached a deal to reduce tariffs has boosted risk sentiment, weighing on gold prices. Under the new agreement, the US will cut additional tariffs on Chinese imports from 145% to 30%, while China will lower tariffs on US goods from 125% to 10%. This agreement is set to last for 90 days and has helped ease tensions between the two economic giants.
Giovanni Staunovo, an analyst at UBS, noted that the easing of tensions between the US and China has reduced the demand for safe-haven assets like gold. “The de-escalation of tensions between China and the US is reducing the demand for safe-haven assets like gold,” Staunovo explained.
Traders Await US CPI Data for Fed Signals
Gold traders are also awaiting the release of the US Consumer Price Index (CPI) for April, set to be announced later on Tuesday. The data is expected to offer crucial insights into the future direction of the US Federal Reserve’s monetary policy. The headline CPI is forecasted to show a 2.4% year-over-year increase, while the core CPI is expected to rise by 2.8%.
With swap markets already pricing in a 25 basis points rate cut by the Fed in September, expectations are for two additional cuts by the end of the year. Last week, markets were pricing in a potential rate reduction as soon as July, although this outlook may shift depending on inflation data and broader economic conditions.
Geopolitical Tensions Could Shift Sentiment
Geopolitical risks are also in focus, particularly regarding tensions between India and Pakistan. Indian Prime Minister Narendra Modi indicated that military operations against Pakistan have only been paused, with future actions depending on Pakistan’s behavior. Meanwhile, Ukrainian President Volodymyr Zelensky expressed a willingness to meet with Russian President Vladimir Putin this week, following US President Trump’s call for immediate peace talks in Turkey. Any escalation in these geopolitical tensions could reignite demand for gold as a safe-haven asset.
Gold’s Long-Term Outlook Remains Positive
Despite the current pullback, gold’s longer-term outlook remains constructive. The price is holding above the key 100-day Exponential Moving Average (EMA), signaling a solid technical foundation. However, further consolidation or a temporary sell-off is possible, as indicated by the 14-day Relative Strength Index (RSI), which remains below the midline.
Price Levels to Watch
On the upside, the first key resistance level for gold is $3,347, the high reached on May 9. A sustained rally above this level could pave the way for a move toward $3,432, the upper boundary of the Bollinger Band. The next significant hurdle would be the all-time high of $3,500.
On the downside, gold has initial support at the psychological $3,200 level, with further support at $3,142, the high seen on April 2.
