Gold prices (XAU/USD) dropped for the second day on Wednesday, moving away from the recent high of nearly $3,500. This happened because investors became more hopeful about a possible trade deal between the U.S. and China, and tensions between Russia and Ukraine seemed to calm down. These good signs made investors feel more confident, and they started moving their money away from safe assets like gold.
Even though gold prices dropped, they still found strong support above $3,300. This is because the U.S. dollar is still weak, and many people think the Federal Reserve might lower interest rates soon. These factors are still helping to keep gold strong, even though investors are feeling more willing to take risks.
US-China Trade Hopes Dampen Gold Demand, But Key Support Holds
Recent comments from U.S. and global leaders have changed how investors feel about the market. President Donald Trump took a softer tone when talking about Federal Reserve Chair Jerome Powell and sounded more positive about easing trade tensions with China.
This helped U.S. stock markets go up and made some investors sell their gold, which is often seen as a safe investment during uncertain times.
However, gold prices haven’t dropped much. That’s partly because the U.S. dollar is still weak, mainly due to investors being unsure about Trump’s changing trade policies. On top of that, many expect the Federal Reserve to start cutting interest rates as early as June. Lower interest rates usually help gold prices because gold doesn’t pay interest, so it becomes more attractive when other returns go down.
Fed Outlook and Weak Dollar Keep Gold Supported Amid Selling Pressure
The U.S. dollar is having a tough time gaining strength again, mostly because many investors believe the Federal Reserve will start lowering interest rates in 2025, possibly three times, starting in the middle of the year.
Lower interest rates usually weaken the dollar, which in turn helps gold prices go up. That’s because gold becomes more attractive when other investments offer lower returns. So even though gold prices recently dropped, experts think it might just be a short-term dip.
Looking at the charts, the price of gold (XAU/USD) has fallen below an important support level—the 23.6% Fibonacci retracement—based on its rise from the mid-$2,900s to a peak of $3,500. But technical indicators still show strength, which means the price could soon stabilize. The next key level to watch is around $3,289, where gold might find support and stop falling.
Outlook: Gold Consolidates Gains, Awaits Economic Data and Trade Updates
Looking ahead, traders will be paying close attention to the release of global flash PMIs to get more information about the economy. These reports could affect how investors feel about risk and influence short-term demand for gold.
The first resistance levels for gold are around $3,370 and $3,400, but if buyers keep pushing, it could reach $3,425 and possibly challenge the $3,500 mark again. On the downside, if gold falls below $3,289, it could lead to further price consolidation.
Overall, unless geopolitical tensions rise or economic data changes expectations for the Federal Reserve, the price of gold is likely to stabilize and hold onto its recent gains rather than drop sharply.
Conclusion
Gold is still trading well above $3,300, even though it has dropped from its record highs. The weakening dollar and expectations of lower interest rates from the Fed are helping support its price. While investors are feeling more confident and reducing their safe-haven demand, the overall economic factors suggest that gold could remain attractive in the medium term.
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