Gold prices (XAU/USD) are holding steady near record highs, maintaining levels above the $3,000 mark reached last Friday. Despite a lack of substantial buying momentum on Monday, the precious metal continues to benefit from global economic uncertainties, including escalating trade tensions and geopolitical risks, which boost demand for safe-haven assets. Additionally, expectations of further interest rate cuts by the Federal Reserve (Fed) are providing further support to gold, a non-yielding asset.
The Fed’s anticipated policy easing, amid concerns of an economic slowdown and President Trump’s aggressive trade policies, has kept the US Dollar (USD) weak, reinforcing the appeal of gold. Last week, the USD touched multi-month lows, helping to prop up gold prices. However, positive sentiment around Asian equities, driven by China’s weekend announcement of new stimulus measures, has somewhat capped gains for XAU/USD. Traders are also staying cautious ahead of a two-day Federal Open Market Committee (FOMC) meeting beginning on Tuesday.
Market Drivers: Economic Concerns and Geopolitical Tensions Fuel Gold’s Rise
US Treasury Secretary Scott Bessent downplayed recent market downturns, calling market corrections “healthy and normal.” However, he expressed uncertainty about the likelihood of a recession, with economic fears exacerbated by President Trump’s trade tariffs. These concerns are fueling demand for gold as a safe haven.
Geopolitical risks are also contributing to gold’s appeal. Houthi leader Abdul Malik al-Houthi threatened to target US ships in the Red Sea in retaliation for US airstrikes in Yemen. The US Defense Secretary confirmed that the US would continue its attacks on the Houthis, further escalating tensions in the region. Additionally, an Israeli drone strike in northern Gaza killed at least nine individuals, including three journalists, underscoring ongoing instability in the Middle East.
Federal Reserve’s Policy Outlook and Economic Data Weigh on USD
Market participants are pricing in the likelihood that the Fed will implement multiple interest rate cuts this year due to mounting concerns over an economic downturn triggered by trade policies. Soft US inflation data and a cooling labor market further support these expectations. According to Fed funds futures, there’s a strong possibility of a 25-basis point rate cut at the Fed’s upcoming meetings in June, July, and October. The University of Michigan’s Consumer Sentiment Index, which fell to its lowest point in nearly two and a half years in March, has only reinforced these expectations, keeping the USD under pressure.
China’s recent economic initiatives, including a stimulus plan to boost domestic consumption and measures to ease housing market pressures, have bolstered investor confidence in the region. These developments, however, are limiting gold’s gains as market participants weigh the prospects of a stabilizing global economy.
Looking Ahead: Economic Data and FOMC Decision in Focus
Traders are awaiting key US economic data, including monthly Retail Sales and the Empire State Manufacturing Index, due later in the day. However, the market’s primary focus will remain on the FOMC’s policy decision on Wednesday, which is expected to influence USD dynamics and provide new direction for gold.
Technical Outlook: Gold Price Consolidation Expected Before Further Upside
Technically, last week’s breakout above the $2,928-$2,930 resistance level sparked optimism among gold bulls. However, the daily Relative Strength Index (RSI) is nearing overbought territory, suggesting that traders may be hesitant to initiate fresh bullish positions at current levels. A period of consolidation or a modest pullback may be necessary before gold resumes its upward trajectory.
Despite potential short-term setbacks, the broader technical outlook remains bullish, with the path of least resistance likely pointing upwards. A significant decline could prompt fresh buying near the $2,956 resistance level, with further support seen at the $2,930-$2,928 zone. A break below this level could signal deeper losses, with the next key support at $2,900, followed by a swing low near $2,880.
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