Gold continues its stellar performance this week, shining brightly in global markets as the US Dollar weakens, trade tensions intensify, and safe-haven demand surges. The precious metal, often considered a hedge against geopolitical and macroeconomic risk, is poised to finish the week with gains exceeding 1.5%.
XAU/USD is currently trading at $3,333, up 0.26% on the day, capitalizing on a weakened Greenback and heightened concerns over the looming trade war escalation. Servelius brokers cover every angle of the topic in this well-researched article.
Trade War Flare-Up Ignites Gold Demand
The US President’s renewed tariff threats have shifted global risk sentiment, prompting investors to seek refuge in Gold. On Friday, he confirmed that letters are being sent to foreign governments ahead of the July 9 deadline, stating that tariffs between 10% and 70% will take effect starting August 1. This announcement has injected a fresh wave of uncertainty into financial markets.
US Treasury Secretary Scott Bessent further stoked volatility, suggesting that as many as 100 countries may be subject to reciprocal tariffs. While he expressed optimism about finalizing trade deals before the deadline, markets interpreted these developments as a net negative for global trade, further boosting bullion.
USD Weakens Amid Thin Liquidity
The US Dollar Index (DXY) fell 0.13%, clinging to the 97.00 level, as thin liquidity persisted due to the Independence Day holiday in the US. The decline in the Dollar has served as a key tailwind for XAU/USD, as Gold becomes more attractive to non-USD-denominated buyers.
Compounding the Greenback’s weakness is the growing perception that the Federal Reserve (Fed) may remain on hold longer than anticipated. Despite solid headline labor data, underlying figures reveal softness in private sector hiring, suggesting that the US economy could be slowing beneath the surface.
Mixed Labor Data Supports Fed Caution
The Nonfarm Payrolls (NFP) report painted a mixed picture. The US economy added 147,000 jobs in June, beating expectations of 110,000, but most gains came from government hiring. Notably, private sector employment registered its smallest gain in eight months, reinforcing concerns that businesses are becoming cautious ahead of the tariff implementation.
Meanwhile, the Unemployment Rate ticked down to 4.1% from 4.2%, while Initial Jobless Claims for the week ending June 28 fell to 233,000, below the anticipated 240,000. Despite these seemingly strong numbers, investors remain cautious. With inflationary pressure from tariffs looming, the Fed is expected to maintain a wait-and-see stance, rather than pivoting to rate cuts immediately.
Fiscal Concerns Add Fuel to Gold Rally
Adding to Gold’s momentum is the expanding US fiscal deficit. The recently proposed “One Big Beautiful Bill”, as dubbed by the US President, extends the 2017 Tax Cuts and Jobs Act provisions, potentially adding $3.4 trillion to the national deficit over the next decade, according to the Congressional Budget Office (CBO) and Joint Committee on Taxation.
This ballooning deficit may put long-term pressure on the US Dollar, bolstering the case for precious metals as a hedge against monetary debasement and sovereign debt concerns. In such an environment, investors tend to increase allocations to hard assets like Gold, especially when real yields are only modestly positive.
Treasury Yields Cap Gold’s Upside
Despite bullish sentiment, elevated US Treasury yields have capped Gold’s upside for now. The 10-year Treasury yield ended Thursday at 4.338%, up 6.5 basis points, while real yields also climbed 3 basis points to 2.018%. Rising yields tend to increase the opportunity cost of holding non-yielding assets like Gold, thereby limiting its near-term breakout potential.
Technical Outlook: Gold Eyes Breakout Levels
Technically, the Gold price is trading in a sideways range but remains in an uptrend. The Relative Strength Index (RSI) hovers around its neutral zone, suggesting consolidation may continue in the short term.
Key resistance lies at $3,400 and the recent peak of $3,452 from June 16. A sustained break above these levels would open the door to a test of the record high at $3,500. On the downside, critical support is seen at $3,300, followed by the June 30 swing low of $3,246. A break below this would target the next demand zone around $3,120, the May 15 low.
Conclusion
In summary, Gold’s bullish momentum is being driven by a weaker US Dollar, intensifying trade war risks, and rising fiscal concerns. While elevated yields and Fed caution temper the upside, safe-haven demand remains strong.
With tariff implementations and political developments looming, the path forward for XAU/USD looks increasingly dependent on how global investors navigate this evolving risk landscape.
