Gold (XAU/USD) finds it challenging to extend modest gains in the Asian session, lingering near the lower end of its daily range around $3,250. A surprise downgrade of the US government’s credit rating has sparked fresh selling in the US fixed income market, driving Treasury yields sharply higher and putting downward pressure on the yellow metal. Meanwhile, optimism surrounding a 90-day US-China trade truce and hopes for additional US trade deals cap gold’s upside, even as a mix of factors limits further losses.
US Treasury Secretary Scott Bessent’s recent reaffirmation of President Donald Trump’s tariff threats, coupled with ongoing geopolitical risks, provides a measure of support for gold’s safe-haven appeal. Additionally, market bets on further Federal Reserve rate cuts in 2025 continue to weigh on the US Dollar (USD), offering some relief to the non-yielding metal. Given these dynamics, traders are advised to wait for decisive follow-through selling before positioning for a resumption of gold’s recent retreat from the $3,500 psychological peak reached in April.
Market Movers:
Moody’s downgrade of America’s sovereign credit rating by one notch to “Aa1” on Friday stemmed from concerns over the mounting national debt. This downgrade coincided with the House panel’s early Monday approval of President Trump’s tax cut bill, a move that could add trillions to the debt burden.
Treasury Secretary Bessent told CNN on Sunday that tariffs will be imposed at threatened levels on trading partners who fail to negotiate “in good faith.” This stance reinforces gold’s safe-haven status early in the week.
Recent US inflation data, including the Consumer Price Index (CPI) and Producer Price Index (PPI), signaled easing inflationary pressures. Meanwhile, disappointing retail sales figures heightened expectations for sluggish economic growth in the coming quarters. The University of Michigan’s Consumer Sentiment Index also deteriorated sharply in May, falling to 50.8 from 52.2 in April—the lowest since June 2022—further cementing bets on at least two 25-basis-point rate cuts by the Fed this year.
The USD continues to struggle amid dovish Fed expectations, providing an additional tailwind for gold. However, trade optimism has tempered recession fears in the US, limiting gold’s upside.
Geopolitical Risks:
Geopolitical tensions remain elevated. Israel’s Prime Minister Benjamin Netanyahu’s office announced limited food access into Gaza, but indirect talks with Hamas have yet to progress. Meanwhile, Ukraine reported a record number of drone attacks by Russia, keeping risk premiums alive and supporting gold in the absence of major US economic releases ahead of key Federal Open Market Committee (FOMC) speeches scheduled later today.
Technical Outlook:
Technically, gold faces resistance near the 200-period Simple Moving Average (SMA) on the 4-hour chart, which has shifted from support to resistance. Traders should await sustained buying above the $3,250-$3,252 supply zone before confirming a bottom and positioning for gains. A decisive break above this zone could propel gold toward the $3,274-$3,275 intermediate resistance and potentially the $3,300 round figure. Clearing $3,300 decisively would shift the near-term bias bullish and open the door for further upside.
Conversely, a drop below the $3,200 level might find initial support near $3,178-$3,177. Continued selling pressure could accelerate gold’s decline toward last week’s swing low around $3,120, and potentially the $3,100 mark. A strong breach below $3,100 would expose further support near $3,060.
