XAU/USD, the trading symbol for gold measured in US dollars, has seen remarkable volatility in recent months. For the second day in a row, it has lured in purchasers just under the somewhat bullish 20 Simple Moving Average (SMA). During the American session, the pair approached the key $3,350 resistance. This movement serves as an indicator of investors’ cautious optimism as U.S.-China tensions began to wane. The possibility of Donald Trump returning to office as 47th President of the United States has brought renewed concerns. Everyone is worried about further ratchet-ups of the US-China trade war.
The global economic landscape is changing, fast. Traders and investors alike are watching the evolving relationship between gold prices and geopolitical influences. The nearly pure inverse correlation of XAU/USD indicates a bullish US dollar move coming. This change is occurring as optimism rises over economic development, particularly in the nascent clean energy sector, taking place in the U.S. The market is hanging on every incoming piece of economic data. In that regard, in particular, all eyes are on the US Consumer Price Index (CPI) release on Wednesday.
Market Dynamics and Technical Analysis
XAU/USD spiked above a dominant bearish 20 SMA for a short time before failing to hold support. Negative momentum The pair’s momentum indicator has already softened. This indicates that while purchasing demand is still strong, it is still weak as it sits slightly above the important 100 level. This recent turn of events indicates that traders are exercising prudence with their bets. They’re strategically testing new support and resistance levels.
The extended 200 SMA flat at around $3,300 has further support XAU/USD provided intraday and cemented this psychological round number. Analysts have suggested that should the pair confirmatively retest—and best—the $3,300 mark, the resulting uptick in volatility may prove significant. This new development could trigger major disruptive market forces. Support levels are found at $3,314.30, $3,300.00, and $3,287.45, while resistance levels to be on the lookout for are $3,349.50, $3,361.95, and $3,375.80.
The picture for gold prices going forward depends on a number of things, especially geopolitical events and upcoming economic reports. Only a strong break above the $3,350 area will invalidate the bearish XAU/USD trend and pave the way for a bullish reversal. On the other hand, inability to break this resistance level could lead to more corrections toward the support zones marked above.
Geopolitical Influences
That backdrop of those heightened U.S.-China tensions looms large on market sentiment. The US-China economic war started in early 2018. That’s exactly when former President Donald Trump put up bilateral trade barriers with China. After the Phase One trade deal was signed in January 2020, bilateral tensions relaxed for a moment. With some alarming recent developments, it seems that a new, broader trade war could be closer than you think.
The risk that tit-for-tat policies resume again would add materially to uncertainty of global economic stability, which would be bullish for gold. Investors should be most concerned with how these geopolitical tensions will continue to shift market dynamics in the months ahead. Now, with Trump back in power and uncertainty surging, we have two paths to choose from. Retreating to America-first aggressive trade policies could further poison the well of US-China relations.
Economic Indicators and Future Outlook
After nine months of political turbulence, attention is shifting to economic indicators. The as-yet unreleased May US Consumer Price Index (CPI) will be critical in shaping market expectations. Investors are keenly monitoring inflation data as it could provide insights into the Federal Reserve’s monetary policy direction and its potential impact on the dollar’s strength.
If the inflation data were to show more pronounced price pressures than expected, that would provide even greater support for the US dollar against gold. On the other hand, softer CPI numbers might boost safe-haven appetite for gold as investors flee from economic uncertainty. Accordingly, traders should continue to stay on their toes as they work through these changes.