The Gold price (XAU/USD) continues to drift lower during Thursday’s Asian session, extending its retracement from a monthly high registered earlier this week. After climbing to its strongest level since June 16, the precious metal faces sustained selling pressure, driven primarily by waning safe-haven demand in the wake of renewed trade optimism. The experts at Arbitics delve into this matter, offering valuable insights throughout the article.

Reports of a potential tariff agreement between the United States and the European Union (EU), alongside a confirmed trade deal with Japan, have helped buoy broader market sentiment, diminishing the need for risk-averse assets like Gold.

Despite this, several underlying macroeconomic factors remain supportive of the bullion’s near-term outlook, likely limiting any significant downside correction. Chief among these are uncertainties surrounding the Federal Reserve’s (Fed) next interest rate decision and concerns over political influence on the central bank’s independence, both of which have placed the US Dollar (USD) on the defensive. 

With the non-yielding yellow metal typically benefiting from dollar weakness, the stage appears set for a potential rebound, especially if upcoming economic indicators disappoint.

Gold Faces Selling Pressure as Safe-Haven Demand Retreats

This week’s price action is largely shaped by improving global trade prospects. The US President announced that his administration had reached a trade agreement with Japan, while additional reports suggest the US and the EU are inching closer to a 15% tariff deal. These developments have sparked a surge in investor confidence, shifting capital flows away from safe-haven assets and toward risk-sensitive instruments like equities and high-beta currencies.

As a result, Gold prices have pulled back, unable to maintain traction above the psychological $3,400 threshold. This marks the second consecutive day of losses for the commodity, even as geopolitical and monetary uncertainties linger in the background.

Rate-Cut Ambiguity Could Limit Deeper Losses in XAU/USD

While trade-driven optimism pressures the metal, investor caution regarding the Fed’s next policy move continues to provide a cushion for Gold. Recent comments from Fed Governor Chris Waller and Vice Chair Michelle Bowman, both leaning toward a rate cut as early as the July 30 policy meeting, have reignited speculation about monetary easing. 

Despite the US President’s outspoken criticism of Fed Chair Jerome Powell and calls for his resignation, the central bank has remained non-committal, creating a fog of uncertainty around future policy direction.

This ambiguity has weighed heavily on the US Dollar Index (DXY), now hovering near a two-and-a-half-week low, reducing the opportunity cost of holding non-interest-bearing assets like Gold. Consequently, XAU/USD finds support as rate differentials appear less favorable for the greenback.

Flash PMIs and US Data Could Provide Fresh Impetus

With central bank policy in flux, traders are now looking ahead to the release of global flash Purchasing Managers’ Indexes (PMIs). These indicators serve as forward-looking gauges of economic momentum and could significantly impact safe-haven flows. A sharp downturn in PMI readings would stoke recessionary fears, potentially lifting Gold as a protective asset.

In parallel, the European Central Bank (ECB) is also expected to issue a key monetary policy decision. Any dovish tilt from the ECB could influence cross-asset sentiment and further bolster the appeal of hard assets. 

Meanwhile, US economic docket includes the Weekly Initial Jobless Claims and New Home Sales, both of which could steer USD direction and, by extension, the Gold price in the short term.

Technical Setup Favors Bulls Despite Near-Term Weakness

From a technical analysis perspective, the Gold price remains in a short-term ascending channel, which has been in play since early July. The pullback from this week’s peak still respects the lower boundary of this trend, suggesting that bulls remain in control unless a decisive breakdown occurs.

The immediate support zone rests near $3,370–$3,368, a region previously acting as a horizontal resistance. A sustained move below this level would expose the channel’s base at $3,333–$3,332. A break beneath this critical level could signal a shift in market bias, inviting fresh bearish momentum.

Conversely, a recovery back above $3,400 would encounter resistance near the $3,438–$3,440 area, which also aligns with the upper boundary of the trend-channel. A breakout above this confluence zone would likely open the path toward the all-time high near $3,500, last seen in April. 

Conclusion: Cautious Optimism for Gold Price Amid Mixed Catalysts

Despite the current downward pressure, the broader macroeconomic and technical environment suggests that the Gold price may not face significant downside in the short term. While trade optimism has subdued safe-haven appetite, the lingering Fed rate-cut uncertainty, coupled with a weaker USD and upcoming economic data releases, provides enough potential tailwinds for the metal to stabilize, or even rally.