Gold (XAU/USD) is facing difficulty in maintaining the momentum from the previous day’s modest gain, with fresh selling pressure emerging during the early Asian session on Wednesday. The market remains buoyed by optimism surrounding the de-escalation of the trade conflict between the US and China, the world’s two largest economies. This has supported a generally positive risk tone in the equity markets, undermining demand for safe-haven assets like gold, which is currently trading near the weekly low touched on Monday.
Additionally, softer-than-expected inflation data from the US on Tuesday has strengthened market expectations for at least two interest rate cuts by the Federal Reserve (Fed) in 2025. This has led to a pullback in the US Dollar (USD) from its highest level since April 10, helping to limit further declines in gold, which remains a non-yielding asset. As a result, gold traders may prefer to wait for a decisive break below the $3,200 mark before considering additional short positions.
Gold Price Faces Pressure from Trade Optimism and Geopolitical Developments
US-China Trade Deal:
US President Donald Trump reinforced optimism regarding the US-China trade deal, stating that he doesn’t foresee tariffs on Chinese goods returning to their previous highs of 145% after the 90-day pause. His comments, made in an interview earlier on Wednesday, added to positive sentiment and further dampened gold’s appeal.
Geopolitical Risks:
On the geopolitical front, tensions between Russia and Ukraine remain high, with both nations set to hold their first high-level talks since 2022 in Istanbul this week. Calls for a 30-day ceasefire are intensifying, and high-level US officials are expected to attend, keeping geopolitical risks in focus. Similarly, tensions in the Middle East were highlighted on Tuesday when the Israeli military intercepted a hypersonic missile fired by the Iran-aligned Houthi militia towards Ben Gurion Airport near Tel Aviv. These events are likely to prevent traders from placing aggressive bearish bets on gold, given its status as a safe-haven asset.
US Inflation Data and Fed Expectations:
US inflation continued to cool in April, with the Consumer Price Index (CPI) edging lower to 2.3% year-over-year from 2.4% the previous month. The core CPI, excluding volatile food and energy prices, rose 2.8% on a yearly basis, in line with expectations. Despite this, markets are pricing in the possibility that the Fed will reduce interest rates by 56 basis points in 2025, which should prevent the USD from attracting significant buying interest and offer some support to gold prices.
Technical Outlook
Gold remains under pressure but has shown resilience near the 200-period Exponential Moving Average (EMA) on the 4-hour chart, currently around the $3,225 region. If gold breaks below this support level, it could trigger further downside, with $3,200 as the next key support level. A decisive move below $3,200 could pave the way for a deeper correction towards the $3,135 area.
On the upside, $3,265-3,266 acts as immediate resistance, and a break above this could allow gold to aim for the $3,300 mark. Should it exceed the weekly high near $3,317-3,318, the bullish momentum could push gold towards the $3,345-3,347 resistance zone, followed by the $3,360-3,365 static barrier. A sustained move beyond this would open the door for gold to test the $3,400 level.
