Gold prices (XAU/USD) are facing mild downward pressure just below a fresh all-time high reached during the Asian session on Monday, as the bulls pause following an extended rally. The commodity is showing signs of overbought conditions on the daily chart, and a slight recovery in global risk sentiment is further capping the upside. However, escalating US-China trade tensions could continue to fuel demand for gold as a safe-haven asset.
The US Dollar (USD) remains weak, trading near its lowest level since April 2022, driven by growing concerns about the US economy and the increasing likelihood that the Federal Reserve (Fed) will resume its rate-cutting cycle. Expectations that the Fed may reduce borrowing costs at least three times this year provide additional support for gold, a non-yielding asset, and favor bullish traders.
US-China Trade War Escalates, Bolstering Gold Prices
The market’s focus remains on the ongoing US-China trade conflict, which continues to weigh on investor sentiment. On Friday, China raised tariffs on US imports to 125% in response to President Donald Trump’s decision to hike duties on Chinese goods to 145%. This move has intensified fears that the trade war between the world’s two largest economies could stifle global economic growth, driving safe-haven demand for gold and pushing its price to new record levels.
In addition, a recent spike in US Treasury yields reflects investor unease with the US economy, further exacerbated by expectations of aggressive monetary policy easing by the Fed. The US central bank’s likely rate cuts, fueled by weak inflation data, have put additional pressure on the US Dollar, benefitting gold as an alternative investment.
Inflation Data and Fed Rate Cuts Support Gold Outlook
Last week, the US Bureau of Labor Statistics reported a 0.1% decline in the Consumer Price Index (CPI) for March, with the annual inflation rate dropping to 2.4% from 2.8% in February. The core CPI, which excludes food and energy, rose by just 0.1%, marking its slowest annual increase in nearly four years. This weak inflation data has raised expectations that the Fed will ease policy further, with traders pricing in a 90 basis point rate cut by the end of 2025, which should support gold prices.
In addition, the prospect of higher tariffs pushing inflation up in the months ahead could further bolster gold’s appeal as a hedge against rising prices. As the yellow metal continues to attract investors, its outlook remains positive, with analysts predicting further near-term appreciation.
Key Events to Watch: Fed Speeches and Retail Sales Data
Looking ahead, market participants will closely monitor speeches from key Federal Reserve officials, including Fed Chair Jerome Powell on Wednesday, for clues on the future path of interest rate cuts. The US Retail Sales report, also scheduled for release on Wednesday, will be another key driver of USD demand and could provide further direction for gold in the second half of the week.
