Gold is having trouble gaining traction below the $3,300 level as optimism towards the prospects of a US-China trade deal and a small recovery in the US Dollar bear down on the metal. Deterioration in China’s gold consumption, especially in jewelry, also weighs on the precious metal. In spite of this, geopolitical tensions, such as the Russia-Ukraine war, and June Federal Reserve rate-cut expectations lend some support to gold as a safe-haven asset. Investors continue to hold back, looking to major US economic data due out this week that may bring more clarity on Fed policy expectations. Technical analysis indicates that gold prices may continue their recent fall if they are unable to hold above key support levels, but a bounce above $3,300 may set the stage for a move towards higher resistance levels.

KEY LOOKOUTS

•  Ongoing optimism regarding a possible US-China trade deal may put pressure on gold prices, but any setbacks or reversals in trade negotiations may prompt a renewed demand for safe-haven assets such as gold.

•  Markets are on the lookout closely for signals that the Federal Reserve will make more rate cuts in the future. Any signals for more aggressive loosening will limit the US Dollar’s rebound and offer support for gold prices.

•  Russia-Ukraine fighting and North Korean participation in the war continue as the primary geopolitical risks that could support demand for gold as an insurance asset if tensions increase.

•  Future important economic reports such as the JOLTS job openings, Personal Consumption Expenditures (PCE), and non-farm payrolls (NFP) could have an impact on market sentiment and the policy stance of the Fed, which may give new direction to gold prices.

Various important factors affecting gold prices in the short term need to be watched closely by investors. The latest news in US-China trade talks continues to be paramount, with any indication of improvement potentially diminishing safe-haven demand, whereas disappointments may provoke new buying. The Federal Reserve policy direction is also being watched, with markets assuming the possibility of rate cuts that would devalue the US Dollar and boost gold. Geopolitical tensions, especially the Russia-Ukraine conflict and North Korea’s involvement, continue to support the metal’s safe-haven demand. Lastly, this week’s US economic releases, such as JOLTS, PCE, and the NFP report, are likely to give more indications on the Fed’s direction, which may create volatility in gold prices.

Gold prices are still sensitive to US-China trade updates, expectations of a Fed rate cut, and geopolitical tensions. Future US economic releases, such as PCE and non-farm payrolls, may offer new direction. Investors are observing key support at $3,260 and resistance at $3,331.

•  Expectations for the easing of trade tensions between the US and China are putting pressure on gold prices, with advances in the negotiations having the potential to lower safe-haven asset demand.

•  A small increase in the US Dollar has been helping gold struggle below the $3,300 level, although additional rate cuts by the Federal Reserve have the potential to curb dollar gains.

•  A year-over-year decrease of 5.96% in Chinese gold consumption, particularly in jewelry, places pressure on gold prices even as there is increased demand for gold bars and coins.

• Geopolitical tensions, such as the Russia-Ukraine conflict and North Korea’s activities, continue to benefit gold as a safe-haven asset.

• Bets in the market for additional Federal Reserve rate reductions, possibly starting in June, may depress the USD and support gold prices as a non-yielding asset.

• Major US reports such as the JOLTS job openings, PCE, and non-farm payrolls (NFP) will be instrumental in determining the Fed’s future policy actions and may drive gold price action.

•  Gold is now probing important support at $3,260, with overhead resistance at $3,331. A decline below support would put further losses in train, while a bounce above resistance could pave the way for a reversal to the upside.

Gold prices are under pressure from several sources, including expectation for a possible US-China trade agreement and a small US Dollar recovery. With trade tensions between the world’s two biggest economies easing, investors are less willing to turn to gold as a safe-haven asset. And China’s decreasing demand for gold, particularly for jewelry, has also helped the prices of gold decline, since the country is among the largest consumers of gold. This falling consumption is part of more general economic headwinds, including the high price of gold that is slowing down demand for more conventional types of gold investment.

XAU/USD Daily Price Chart

Source: TradingView

Gold is being buoyed despite these headwinds by geopolitical uncertainty, including the Russia-Ukraine conflict that continues to fuel demand for assets that are perceived as being safer in times of uncertainty. In addition, anticipation of additional interest rate reductions by the Federal Reserve may keep the US Dollar from appreciating much, providing some degree of support for gold. With markets waiting for major US economic releases, such as the JOLTS report and non-farm payrolls, there is a degree of caution, with investors seeking greater clarity on the monetary policy of the Fed and how it may affect both the Dollar and gold.

TECHNICAL ANALYSIS

Gold prices are now testing crucial support levels near $3,260, and a possible breakdown below here could indicate more downside risk. If the price is unable to hold this support, it could trigger a move towards the $3,225 area or even the psychological $3,200 level. On the positive side, gold encounters resistance around the $3,331-$3,332 levels, and a firm break above this level can possibly pave the way for a bounce back to the $3,366-$3,368 supply zone. A strong push above this zone can potentially pave the way for a larger rally, with the $3,400 level and higher serving as key targets for bulls. The major price action over the next few days will be largely influenced by the interaction of general economic data and geopolitical events.

FORECAST

Gold may see a bounce if geopolitical tensions, including the Russia-Ukraine conflict, keep rising or if sentiment in the market turns to higher uncertainty. Also, if the Federal Reserve hints at further aggressive rate cuts or turns dovish on weak economic data, the US Dollar could weaken even further, boosting gold. Breaking above the $3,331 resistance level can set the stage for a rally, which could take gold up to the $3,366-$3,368 region and beyond, with the $3,400 level serving as the next major target for bulls.

On the negative side, if US-China trade tensions continue to de-escalate and the US Dollar continues with its modest upturn, gold prices could come under further pressure. A fall below the important support level of around $3,260 could set the stage for further selling, which could take prices down to the $3,225 level or the $3,200 level. Should the economic reports published this week show a better-than-anticipated US recovery, then this would drive tighter monetary policy expectations, again pushing the US Dollar higher and depressing gold. The $3,200 level would be the key level to monitor for any further falls.