Gold Analysis: XAU/USD extends rally as haven appeal returns

Gold analysis points to safe-haven demand resurfacing amid equity market softness
Momentum firming once more as the dollar wavers and bond markets cool
Key technical levels in sight

Gold, having already staged a near 3% rally at the start of the week, extended its gains into Tuesday as risk sentiment took a knock. A softer US dollar, coupled with falling equity markets, has reinvigorated the yellow metal’s appeal as a haven asset. The Japanese yen was also catching a bid, causing the dollar index to ease lower for the third day. This latest leg higher in gold prices suggests the burst of optimism—fuelled by a handful of US trade concessions—may already be fading. Monday’s break in the S&P 500’s nine-day winning streak, its longest in nearly 20 years, was telling. With several corporates now flagging concerns over the longer-term impact of tariffs, gold is once again stepping into the limelight. In Europe, the DAX fell sharply on news Friedrich Merz failed to win parliamentary backing to confirm him in his role as German Chancellor. At the time of writing, gold prices were around $120 shy of the all-time high near $3,500—a modest 3.5% gap. With the metal already rallying some 5.5% from last week’s trough, momentum appears to be firmly back in play from a technical gold analysis point of view.

What might cap the gold rally?

Looking at gold analysis more broadly, the metal had recently been under pressure after briefly touching the $3,500 mark a fortnight ago. Yet it has found its feet again—and quite convincingly. A key catalyst has been the stalling in equity indices, giving bears little reason to press their case. Indeed, a degree of short-covering seems to have assisted this upward squeeze. Still, should signs of progress re-emerge on the US trade front—particularly with China—one wouldn’t be surprised to see a degree of cooling in gold prices. At present, however, expectations for an imminent deal remain muted, which could serve to underpin gold in the short term.

All Eyes on the Fed

The Federal Reserve is due to announce its policy decision on Wednesday, and while it is widely expected to keep rates unchanged at 4.25–4.50%, markets will be watching closely for nuance. Chairman Powell continues to face pressure to cut rates, though the June meeting is seen as the more likely venue for such a move. For now, the Fed is likely to maintain a cautious stance, emphasising independence and assessing the inflationary impact of tariffs. From a gold analysis perspective, this particular meeting may not prove especially catalytic, barring any significant shift in tone.

Gold analysis: Technical view suggests bulls still in driving seat

From a technical standpoint, the XAUUSD forecast remains constructive. The recent two-week consolidation phase has helped to neutralise overbought conditions, including in popular momentum indicators such as RSI. This has allowed dip buyers to re-enter the market around key support levels. With resistance zones now being tested and breached, further upside cannot be ruled out. That said, some interim hurdles could trigger a degree of profit-taking.

XAU/USD key levels to watch

Source: TradingView.com

The $3,400 level is now firmly in view, which is the next upside target for the bulls. This round handle is positioned between the 61.8% ($3,386) and 78.6% ($3,436) Fibonacci retracement levels, based on the move down from the all-time high. These Fibonacci levels may also act as potential hurdles, at least momentarily anyway.

On the downside, several layers of support will need to give way before bearish pressure can meaningfully reassert itself. Initial levels to watch include $3,370 and Monday’s peak at $3,337. Below that, $3,300 and $3,269 are notable.

Further out, longer-term support resides at $3,167, $3,100, and the critical $3,000–$3,020 area. These are likely to attract dip buyers should price action retreat more materially. Only if we go below these levels will the long-term technical gold analysis turn negative.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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