Gold Prices Slide as Trade Optimism and Dollar Strength Dominate

Gold is under pressure from multiple fronts. A stronger U.S. dollar, bolstered by optimism over U.S.-China trade talks, has reduced demand for the safe-haven metal. Recent Reuters reports note a 90-day trade truce has eased global market tensions, pushing investors toward riskier assets like equities.

U.S. inflation data, with the latest CPI showing moderation, has fueled speculation of Federal Reserve rate cuts in 2025, though a hawkish Fed stance could limit gold’s upside.

Geopolitical factors, such as ongoing tensions between Russia and Ukraine and border disputes between India and Pakistan, offer some support, but trade-related optimism has overshadowed these.

Central bank gold purchases, a key driver in 2024, have slowed, with the World Gold Council reporting a 10% drop in Q1 2025 demand, further weighing on prices.

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Technical Snapshot

From a technical perspective, gold’s short-term outlook is bearish but retains longer-term bullish signals. The 50-day EMA at $3,218.34 sits just above the current price, while the 200-day EMA at $2,951.69 confirms a broader uptrend.

Key support is at $3,155, with a break below potentially targeting $3,100 or even $3,078, as noted by FXStreet. Resistance lies between $3,230 and $3,280, where sellers have repeatedly capped rallies.

The Relative Strength Index (RSI) at 46.76 indicates neutral momentum, down from overbought levels in April, suggesting room for further declines before reaching oversold territory.

Negative oscillators on daily charts reinforce caution, with a recent failure near the 200-period SMA on the 4-hour chart ($3,252-$3,255) signaling weakening bullish momentum.

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Sentiment

Investor sentiment has turned cautious, which highlights concerns over U.S. economic data and trade developments. A Bank of America survey found 45% of fund managers now view gold as overvalued, up from 34% last month, the highest since 2008.

The Fear and Greed Index remains neutral, balancing geopolitical risks against optimism in risk assets like the S&P 500, which gained 0.78% on May 16. This mixed mood suggests investors are hedging bets, with some shifting from gold to equities amid trade deal hopes.

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

Outlook

Analysts offer varied forecasts for gold in 2025. A bullish scenario, per CoinCodex, sees prices hitting $4,063.86 by October if geopolitical tensions escalate or global policy easing accelerates.

Goldman Sachs projects $3,700 by year-end in their base case, with a potential spike to $3,880 in a recession-driven surge of ETF inflows.

Conversely, a bearish case could see prices drop to $3,076.08 if trade tensions continue to ease and the Fed adopts a hawkish stance, strengthening the dollar further.

Risks include sustained U.S.-China trade de-escalation, which could sap safe-haven demand, and unexpected rate hikes, which would elevate bond yields and pressure gold.

Investors should watch upcoming U.S. retail sales and jobless claims data, as well as any escalation in Middle East or Eastern European conflicts, which could reignite safe-haven flows.

Investment Implications

For investors, gold remains a hold in the current environment. The recent pullback offers a potential buying opportunity near support levels ($3,155-$3,100), but caution is warranted given bearish technical signals and dollar strength.

Long-term, gold’s role as a hedge against inflation and geopolitical uncertainty supports its inclusion in diversified portfolios, especially if global risks intensify.

However, near-term risks like rising bond yields or further trade optimism could trigger additional declines. Traders should monitor Fed speeches and U.S. economic indicators closely, as these will shape gold’s trajectory through 2025.