Gold extended its losses for a second straight day, retreating sharply after briefly crossing the $3,400 mark earlier this week. The pullback comes amid a strengthening U.S. dollar and renewed risk appetite following the announcement of a U.S.-U.K. trade agreement.
As of Thursday, spot gold (XAU/USD) was trading at $3,311, down more than 1.6% on the day. The yellow metal has declined nearly 4% over the past two sessions, reversing Tuesday’s rally and erasing recent gains.
The announcement of the trade deal between U.S. President Donald Trump and U.K. Prime Minister Keir Starmer improved global sentiment, pushing the U.S. dollar higher and dampening demand for gold, a traditional safe-haven asset. Investors are now focused on upcoming trade talks between U.S. and Chinese officials set to take place Saturday in Switzerland, where tariff discussions will resume.
The shift in market mood lifted U.S. equities and strengthened the dollar, both traditionally bearish for gold. The U.S. Dollar Index (DXY), which measures the dollar against a basket of six major currencies, surged past the 100.00 threshold to 100.71, up 0.85%—a key headwind for gold.
Macroeconomic Developments Favor the Dollar
Economic data released Thursday showed continued strength in the U.S. labor market. Initial jobless claims for the week ending May 3 came in at 228,000, below expectations of 230,000 and lower than the previous reading of 241,000. The robust data supports the Federal Reserve’s current stance of holding interest rates steady.
Following the Fed’s May 7 policy meeting, Chair Jerome Powell signaled that the central bank is in no hurry to cut rates amid persistent inflation concerns. U.S. Treasury yields rose in response, with the 10-year benchmark yield up 10 basis points to 4.375%. Real yields on 10-year Treasury Inflation-Protected Securities (TIPS) also climbed 10 basis points to 2.125%.
Swap markets have now priced in the first potential 25-basis-point Fed rate cut for July, with two additional cuts expected later in the year.
Central Banks Continue Gold Accumulation
Despite the price dip, central bank demand for gold remains strong. According to the World Gold Council, central banks from China, Poland, and the Czech Republic increased their bullion reserves in April.
The People’s Bank of China added 2 tonnes to its reserves, marking its sixth consecutive month of purchases. The National Bank of Poland increased holdings by 12 tonnes to a total of 509 tonnes, while the Czech National Bank added 2.5 tonnes.
Technical Outlook: Momentum Favors Further Weakness
From a technical perspective, the gold price has broken below the critical $3,400 level, with momentum indicators suggesting a potential move lower. The Relative Strength Index (RSI) shows weakening bullish momentum, which may signal further downside pressure.
If gold breaches the $3,300 support level, it could trigger a decline toward the May 1 low of $3,202. However, a rebound above $3,350 could reopen the path toward a retest of the $3,400 zone.
