Gold prices pulled back slightly in early European trading on Thursday, retreating from near two-week highs around $3,345-$3,346, as a modest rebound in the US Dollar (USD) applied mild pressure on the precious metal. Despite this intraday dip, the outlook for gold remains broadly positive, supported by expectations of Federal Reserve rate cuts in 2025 and persistent concerns over the US fiscal outlook.
The minor recovery in the USD appears to be the primary catalyst for the retreat in XAU/USD. However, broader market sentiment still favors gold as a safe-haven asset amid growing acceptance that the Federal Reserve will continue easing monetary policy next year. Rising US debt levels and concerns about the federal budget deficit are likely to constrain the dollar, indirectly supporting gold, which does not yield interest.
US Fiscal Woes and Global Risk Aversion Support Gold’s Safe-Haven Appeal
Appetite for risk remains subdued, with investors turning cautious due to a weakening US growth outlook and escalating geopolitical tensions. Equities traded with a softer tone, and renewed friction between the US and China further weighed on market sentiment. This risk-off environment has helped limit gold’s downside, reinforcing its status as a safe-haven asset.
Technical indicators also suggest a bullish setup for gold. The metal has now established support above the psychologically significant $3,300 level, indicating that any near-term correction is likely to be shallow and potentially viewed as a buying opportunity.
Debt Concerns Grow as US Moves Forward with Major Spending Bill
In Washington, the House Rules Committee, dominated by Republicans, advanced a major tax-and-spending proposal backed by former President Donald Trump. Dubbed the “One Big, Beautiful Bill,” the package is estimated to increase the national debt by between $3 trillion and $5 trillion, further deepening the country’s fiscal imbalances.
The news follows a lukewarm response to Wednesday’s auction of 20-year Treasury bonds, which signaled waning investor confidence in US fiscal discipline. Moody’s recent downgrade of the US sovereign credit rating from the top-tier “Aaa” has only intensified these concerns, pressuring the dollar lower in recent sessions.
Market participants now widely expect the Fed to respond with further interest rate cuts, given a combination of declining inflation and sluggish growth forecasts. This dovish outlook is expected to limit any significant rebound in the USD, creating a supportive backdrop for gold prices.
US-China Tensions and Global Geopolitical Risks Add to Gold’s Appeal
In a fresh blow to US-China trade relations, Beijing sharply criticized Washington’s restrictions on advanced chip exports. The US recently issued new guidelines discouraging firms from using Huawei’s Ascend AI chips, prompting China’s Commerce Ministry to label the move as “unilateral bullying and protectionism.”
On the geopolitical front, Israel’s continued military action in Gaza and worsening humanitarian conditions have added to global instability. Meanwhile, reports emerged that Donald Trump told European officials Russian President Vladimir Putin remains confident in his military campaign in Ukraine, believing he holds the upper hand. These developments have further boosted demand for gold as a safe-haven asset.
Economic Data in Focus
Investors are closely watching today’s release of flash Purchasing Managers’ Index (PMI) figures, which will offer a glimpse into global economic conditions. In the US, data on weekly jobless claims and existing home sales are also expected, potentially impacting dollar movements and, by extension, gold prices.
Technical Outlook: Bullish Setup Intact, $3,300 Level Remains Key Support
Technically, gold remains in an upward trajectory after breaking through resistance at $3,250–$3,255 earlier this week. The move also confirmed acceptance above the 61.8% Fibonacci retracement level of the recent decline from the monthly high, reinforcing bullish momentum.
Momentum indicators on the daily chart continue to trend positively, supporting the case for a move towards the next resistance zone near $3,363–$3,365, with a potential target at the $3,400 round figure.
On the downside, initial support lies near the $3,316–$3,315 area, corresponding to the 61.8% Fibonacci retracement level. Should prices fall below this level, the $3,300 zone will be closely watched. Deeper pullbacks may attract renewed buying interest around $3,285 and are likely to be contained by former resistance near $3,250–$3,255, now acting as support. A break below this zone could trigger technical selling, potentially dragging the metal toward $3,200.
