Gold Prices Recover from Daily Lows as USD Weakens, but Risk-On Sentiment Caps Gains

The US dollar’s decline to 100.45 on the DXY, a nearly two-week low, has provided a tailwind for gold prices, which trimmed intraday losses after dipping toward $3,200.

Market expectations of at least two Federal Reserve rate cuts in 2025, driven by recent softer-than-expected CPI (2.9% year-over-year in April) and retail sales data (0.4% growth, below forecasts), have weakened the dollar.

However, hawkish comments from FOMC members signal caution. Atlanta Fed President Raphael Bostic warned that inflation remains above the 2% target and suggested only one rate cut this year, while New York Fed President John Williams noted balanced labor markets but flagged forward-looking concerns.

Fed Vice Chairman Philip Jefferson emphasized anchoring inflation expectations to prevent tariff-driven price spikes, and Minneapolis Fed President Neel Kashkari highlighted trade policy uncertainties denting investor sentiment. These mixed signals keep the USD under pressure but limit gold’s upside potential.

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Risk-On Sentiment Caps Gold’s Gains

Despite the dollar’s weakness, gold struggles to attract bullish bets due to a positive global risk tone. A 90-day US-China trade truce, announced after President Donald Trump’s tariff suspension until mid-July, has boosted equity markets, with the S&P 500 up 0.9% and the Hang Seng Index gaining 1.2% on May 19.

Hopes for a Russia-Ukraine ceasefire, following Trump’s Truth Social post about ongoing negotiations, further diminish demand for safe-haven assets. Geopolitical tensions persist, however, with Israel’s military operations in Khan Yunis, Gaza, adding uncertainty.

Moody’s downgrade of the US credit rating to Aa1, citing a projected debt-to-GDP ratio of 134% by 2035, had a muted impact on risk sentiment, as trade optimism overshadows fiscal concerns. This dynamic continues to act as a headwind for gold prices.

Did You Know?
Gold is often called the “crisis commodity” because its price tends to rise during periods of geopolitical or economic uncertainty, making it a key barometer of global risk sentiment

Technical Outlook for XAU/USD

From a technical perspective, gold’s failure to break above the 200-period Simple Moving Average (SMA) on the 4-hour chart, around $3,250-$3,255, signals bearish momentum.

Negative oscillators on hourly and daily charts reinforce a downward bias, with a break below $3,200 potentially targeting last week’s low near $3,120 or the $3,100 support level.

A decisive drop below $3,100 could expose the $3,060 region. Conversely, a sustained move above $3,255 might indicate a short-term bottom, potentially pushing prices toward $3,274-$3,275 or the $3,300 level. Real-time market sentiment suggests traders are cautious, awaiting FOMC speeches for directional cues.

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Market Movers and What’s Next

With no major US economic data slated for release today, speeches from FOMC members, including Bostic and Williams, will be pivotal in shaping USD and gold price movements.

Trade-related developments, particularly US-China tensions over Huawei’s AI chips and tariff compliance, could also influence risk sentiment.

China’s recent rate cuts to 3.00% (one-year LPR) and 3.50% (five-year LPR) have bolstered Asian equities but failed to lift gold, underscoring the dominance of risk-on sentiment. As markets navigate these dynamics, gold’s near-term trajectory hinges on the balance between USD weakness and global optimism.