Tuesday's brief spike in gold prices (XAU/USD) above $3,500 was followed by a minor drop. When traders reassess overbought market conditions, there is a pause. The recent rally may require a short-term correction, as indicated by the daily Relative Strength Index (RSI) remaining above the 70 mark.
Gold is still generally seen favourably despite the decline. The demand for safe havens is still being supported by ongoing uncertainty surrounding US trade policy and worries about the stability of the world economy. Market reaction to prospective US interest rate cuts and geopolitical events continues to be the main focus.
Investor confidence in the US Dollar remains under pressure following mixed signals from the White House on trade policy. Recent moves by the Biden administration, including proposed tariffs and economic measures, have led to cautious market sentiment.
Furthermore, there is increasing conjecture regarding the Federal Reserve's upcoming rate decisions. The CME FedWatch Tool indicates that traders anticipate up to three rate reductions in 2025, including a 25 basis point cut in June. These expectations have reduced the Dollar’s strength, providing further support to gold prices.
Outside of the US, new military operations in Eastern Europe, such as missile and drone strikes in Ukraine, have increased demand for gold even more. As investors look for safer assets in the face of uncertainty, the persistent geopolitical risks continue to drive bullion.
The Richmond Manufacturing Index and flash PMIs, which are due on Wednesday, are among the important US economic data that markets are now anticipating. These updates could impact gold's next move and offer insight into economic momentum.
Although gold is still on the long-term upward trend, the overbought levels indicate that the price may consolidate before making another attempt to rise. The $3,425–$3,423 range shows immediate support. With $3,358 as the next important support, a break below $3,400 might result in additional selling pressure.
It is recommended that traders keep a close eye on Fed commentary and macroeconomic data, as these will have a significant impact on how prices move in the near future.
As gold continues to respond to economic data, central bank signals, and geopolitical risks, it remains a key instrument for traders seeking stability during periods of uncertainty. The recent pullback offers a chance for market recalibration, but long-term demand for gold is still supported by its safe-haven appeal.
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