Gold prices (XAU/USD) have moved higher to approximately $3,255 during the early European session on Tuesday, as traders adopt a cautious stance ahead of the release of the U.S. April Consumer Price Index (CPI) report later in the day. While the precious metal has gained ground, optimism surrounding a potential tariff deal between the United States and China could limit the upside potential for gold.
Risk sentiment has improved following the announcement of a temporary deal between the U.S. and China aimed at reducing tariffs. As part of the agreement, the U.S. will reduce additional tariffs on Chinese imports from 145% to 30%, while Chinese duties on U.S. imports will drop from 125% to 10%. These new measures are set to remain in effect for 90 days. Furthermore, Reuters reported that the U.S. will also reduce “de minimis” tariffs on Chinese shipments from 120% to 54%, with a minimum flat fee of $100.
According to Giovanni Staunovo, an analyst at UBS, the de-escalation of tensions between China and the U.S. is likely to reduce demand for safe-haven assets like gold. The tariff reductions could curb the appeal of gold as an investment, pushing its price lower.
Gold traders are also awaiting the U.S. CPI inflation data, which could provide insights into the Federal Reserve’s future policy decisions. The headline CPI is expected to show a year-over-year increase of 2.4% in April, while the core CPI is projected to rise by 2.8% in the same period.
Swap markets are anticipating the first 25 basis points (bps) rate cut by the Federal Reserve in September, with expectations of two additional rate cuts towards the end of the year. Last week, markets were signaling three rate reductions in 2025, potentially beginning as early as July.
Geopolitical developments could also influence gold prices. On Monday, Indian Prime Minister Narendra Modi indicated that operations against Pakistan had only been temporarily suspended, with future actions depending on Pakistan’s behavior. Meanwhile, Ukrainian President Volodymyr Zelensky expressed readiness to meet with Russian President Vladimir Putin this week, shortly after U.S. President Donald Trump urged Zelensky to accept Putin’s offer for peace talks in Turkey. Any signs of escalating geopolitical tensions could spur demand for safe-haven assets like gold.
Gold Price Outlook: Long-Term Positive Tone
Despite the recent fluctuations, the longer-term outlook for gold remains positive. The price is holding above the key 100-day Exponential Moving Average, indicating a constructive outlook for the precious metal. However, a period of consolidation or a temporary sell-off cannot be ruled out, as the 14-day Relative Strength Index (RSI) is currently positioned below the midline.
Looking ahead, the first key resistance level for gold is $3,347, the high reached on May 9. A sustained move above this level could open the door for further gains towards $3,432, the upper boundary of the Bollinger Band. Beyond that, the next significant hurdle is the all-time high of $3,500.
On the downside, the psychological support level for XAU/USD is at $3,200. If the price falls below this level, the next support level to watch is $3,142, which corresponds to the high of April 2.
