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Gold prices continue to trade with strength as market sentiment remains broadly supportive. The recent pullback in XAU/USD is not driven by any clear fundamental catalyst, suggesting underlying bullish momentum. Despite retreating from a two-week high, gold remains within a favorable environment shaped by central bank expectations, fiscal concerns in the U.S., and geopolitical instability. As the Federal Reserve's monetary path and the global macroeconomic outlook evolve, investors are closely watching for buying opportunities on dips.
 

Dovish Fed Outlook and Rising U.S. Debt Fuel Gold's Safe-Haven Appeal

The Federal Reserve is widely expected to cut interest rates in 2025 due to slowing U.S. economic indicators and easing inflationary pressures. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, making it more attractive to investors seeking safe alternatives. This monetary outlook is a key driver of the recent support seen in gold prices.

At the same time, concerns about U.S. fiscal health are mounting. President Donald Trump’s proposed tax-and-spending bill is projected to add $3 to $5 trillion to the national debt, raising alarm among investors. Moody’s recently downgraded the U.S. sovereign credit rating, citing fiscal discipline risks. The weak demand seen in the latest 20-year Treasury bond auction further underscores growing skepticism about the U.S. government's financial trajectory. These developments have put downward pressure on the U.S. Dollar (USD).

A weaker USD supports gold, which is priced in dollars, as it becomes more affordable for foreign buyers and boosts demand. On the geopolitical front, rising tensions between the U.S. and China, particularly over export controls and restrictions on Huawei's AI chips, add to market uncertainty. Additionally, President Trump’s comments about the ongoing war in Ukraine suggest no near-term resolution, further elevating global risk. In this climate, gold retains strong Appeal as a safe-haven asset. The combination of a dovish Fed, a weakening dollar, and global geopolitical tension sets a solid foundation for sustained gold demand.
 

Technical Analysis: Gold Trades near Resistance as Breakout Could Spark Bullish Reversal

The chart below shows that gold has been trading within a descending channel since mid-April. This technical formation reflects a short-term bearish trend, with lower highs and lower lows. Currently, gold trades near the upper boundary of this channel, around $3,309. A breakout above this level could signal a reversal of the short-term downtrend. However, rejection from this resistance could lead to a retest of support levels near $3,140.

(Click on image to enlarge)

The lower end of the channel acts as strong support. Each previous test of this support has seen a bounce, suggesting buying interest remains at these levels. Despite the recent pullback, price action remains constructive within this pattern. The retracement appears to lack momentum, indicating it may only be a pause in the broader uptrend.

Traders should watch for a confirmed breakout above the descending channel. That could indicate a return to bullish momentum and potentially new highs. Until that breakout occurs, price movements will likely remain within the channel, with support and resistance guiding near-term direction.
 

Conclusion

Gold remains well-supported by a mix of dovish Fed expectations, U.S. fiscal concerns, and global geopolitical tensions. These factors continue to underpin demand for the metal as a safe-haven asset. Despite recent technical pullbacks, gold’s broader outlook stays constructive. A confirmed breakout above the current descending channel could reignite bullish momentum. Until then, traders will likely focus on dip-buying opportunities and key support levels.

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