- Gold prices remain above the 20-day moving average with psychological resistance firming at $3,350.
- Trade talks between the United States and China in London continue to limit Gold’s upside potential.
- Any developments in the talks are expected to drive USD and Gold price action into the US session.
Gold price is trading slightly higher against the US Dollar (USD) on Tuesday, with the precious metal trading near $3,340 at the time of writing.
Ongoing trade talks between the United States and China continue to influence global risk sentiment, helping to stabilize the US Dollar (USD).
As US Treasury Secretary Scott Bessent, US Trade Representative Jamieson Greer, and US Commerce Secretary Howard Lutnick continue discussions with China’s Vice Premier He Lifeng for the second day in London, markets remain focused on trade-related developments.
Ahead of Tuesday’s meeting, Commerce Secretary Lutnick told reporters that trade talks with China are progressing well and added that he expects the talks to continue throughout the day, according to Reuters.
These negotiations are expected to continue influencing the direction of the Gold and US Dollar on Tuesday, as investors weigh the potential for eased tensions and improved economic cooperation between the world’s two largest economies.
Gold daily digest: US-China trade talks in London remain the primary focus for markets
- On Monday, Kevin Hassett, Director of the US National Economic Council (NEC), added to market optimism in an interview with CNBC, stating, “I expect this to be a short meeting with a firm handshake!”.
- In a Wall Street Journal comment, Hassett noted that the US anticipates “any export control from the US will be eased and the rare earths will be released in volumes.” Once the more significant issues have been addressed, the US and China are expected to discuss less-urgent matters.
- Additionally, positive remarks on Monday from US President Donald Trump, affirming that he is getting “good reports” from the meeting, are contributing to keeping market sentiment buoyed.
- Data released by China’s General Administration of Customs (GAC) on Monday showed that China’s exports to the US decreased by 35% YoY in May. This was the steepest decline since February 2020, when trade was severely disrupted by pandemic-related shutdowns.
- The expectation that China will release rare earths in volume signals potential relief for the US supply chain. These minerals are crucial for sectors such as technology, defense, and green energy, where they are essential for products like semiconductors, electric vehicles (EVs), and military hardware.
- These developments are significant not only for geopolitical stability but also for global economic growth forecasts.
- The next fundamental catalyst on the US economic calendar will be on Wednesday, with the release of US Consumer Price Index (CPI) data for May. Expectations are for headline US CPI to rise by 0.2% on a monthly basis. Inflation is expected to increase to 2.5% YoY, from 2.3% in April.
- The core CPI, which excludes food and energy prices, is expected to show a 0.3% MoM increase in May compared to 0.2% in April. The YoY figure is also estimated to reflect a 0.1% increase, rising to 2.9% compared to 2.8% in April.
- The inflation data is an important contributor to interest rate expectations, which drive the direction of the USD and the Gold price. Friday’s Nonfarm Payroll report (NFP), which showed the US economy added more jobs than anticipated in May (139,000 vs. an estimated 130,000), helped ease USD weakness, placing less pressure on the Federal Reserve (Fed) to cut interest rates in the near term.
- With stronger employment data increasing the likelihood that the Fed will cut interest rates by 25 basis points in September, the prospect of higher-for-longer interest rates weighs on the non-yielding Gold price, which is inversely correlated with the Greenback.
- According to the CME FedWatch Tool, market participants expect the Fed to leave interest rates unchanged within the current 4.25% to 4.50% range at the June and July meeting, with a 54.7% probability of a rate cut priced in for September.
Gold technical analysis: XAU/USD finds support above the 20-day moving average
Gold price is currently holding above the $3,300 mark, hovering around $3,340 at the time of writing, as the market finds short-term support in this range.
On the upside, resistance is forming near the psychological level of $3,350, and a break above this barrier could open the door for a move toward Friday’s high near $3,375. Further up, the $3,392 resistance level limited the bullish potential last week, followed by the $3,400 psychological level. If buyers clear this zone and bullish momentum gains traction, a move toward the April all-time high at $3,500 may be possible.
However, the Relative Strength Index (RSI) indicator flattens near the neutral zone of 50 in the daily chart, signalling a lack of momentum and indecision among traders.
In the event of a downside move, the immediate support for the Gold price is at the 20-day Simple Moving Average (SMA) at $3,303, just above the next psychological support zone of $3,300, and ahead of the 23.6% Fibonacci retracement level of the January-April rise at $3,291.
The 50-day SMA could then provide an additional layer of support around $3,270, while the tip of a symmetrical triangle chart pattern could provide another important barrier for downside price action at $3,240.
Gold (XAU/USD) daily chart
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
