Gold (XAU/USD) maintained its gains on Monday, trading near the upper range around $3,250 during European hours following a volatile session. The precious metal found support after a surprise downgrade of the US government’s credit rating heightened demand for safe-haven assets amid growing concerns over the country’s economic outlook and fiscal stability.
Despite this, optimism surrounding a 90-day US-China trade truce and hopes for additional trade agreements with other nations have capped the upside for gold, though multiple factors continue to limit potential losses.
US Treasury Secretary Scott Bessent’s recent confirmation of President Donald Trump’s tariff threats, combined with ongoing geopolitical tensions, has provided additional support to gold prices. Furthermore, market expectations of further interest rate cuts by the Federal Reserve in 2025 have weighed on the US Dollar, lending further strength to the non-yielding yellow metal. Traders remain cautious, awaiting a strong follow-through in selling before betting on a continuation of gold’s recent pullback from the psychological $3,500 level, a peak last seen in April.
Market Movers: Gold Gains as Safe-Haven Demand Rises and USD Weakens
On Friday, Moody’s downgraded the US sovereign credit rating by one notch to “Aa1,” citing concerns over the country’s expanding debt burden. This downgrade coincided with the House panel’s approval of President Trump’s tax cut bill on Monday, a move projected to add trillions to the national debt.
Adding to the market sentiment, Treasury Secretary Scott Bessent reiterated on Sunday that the US will impose tariffs at previously threatened rates on trading partners failing to negotiate in “good faith.” This stance underpins demand for gold at the start of the new week.
Recent US economic data has pointed to easing inflationary pressures, with the Consumer Price Index (CPI) and Producer Price Index (PPI) showing signs of moderation. However, weaker-than-expected retail sales figures have increased expectations that the US economy may face several quarters of sluggish growth.
Consumer confidence also took a hit, as the University of Michigan’s Surveys revealed a decline in the Consumer Sentiment Index to 50.8 in May, the lowest level since June 2022. This has reinforced market bets on at least two 25-basis-point rate cuts by the Fed this year.
The US Dollar continues to struggle amid dovish Federal Reserve expectations, further supporting gold prices. However, improving trade prospects have eased fears of a US recession, limiting the metal’s upward potential.
Geopolitical Risks Maintain Support for Gold
Geopolitical developments continue to play a key role in gold’s safe-haven appeal. Israel’s Prime Minister Benjamin Netanyahu’s office announced on Sunday that limited food supplies will be allowed into Gaza, though no progress was reported in indirect talks with Hamas.
Meanwhile, Ukraine reported a record number of drone attacks by Russia, keeping geopolitical tensions elevated. These risks help sustain demand for gold ahead of upcoming speeches by influential Federal Open Market Committee (FOMC) members later in the day.
Technical Outlook: Gold Struggles Near Key Resistance
Technically, gold is facing resistance near the 200-period Simple Moving Average (SMA) on the 4-hour chart, a level that has shifted from support to resistance. Traders are advised to await sustained buying beyond the $3,250–$3,252 zone before confirming a bottom and positioning for further gains.
A successful push above this zone could open the way to the next resistance between $3,274 and $3,275, and potentially challenge the psychologically important $3,300 mark. Clearing this level decisively would negate near-term bearish bias and signal a bullish shift, paving the way for additional upside.
On the downside, a decline below $3,200 could find interim support around $3,178–$3,177. Further selling pressure may accelerate a slide toward last week’s swing low near $3,120, the lowest level since April 10, and possibly test the $3,100 mark. A break below this point could expose the next support area near $3,060.
