By Linh Tran, Market Analyst at XS.com
Gold has experienced three consecutive sessions of decline, shedding nearly $100/oz from its recent peak around $3,440/oz. This is a significant correction, reflecting a shift in short-term market sentiment and indicating that the precious metal is currently under pressure from both economic and geopolitical factors.
One of the key drivers behind this pullback stems from a series of positive signals on the global trade front. The recently announced U.S.–Japan trade agreement has rekindled hopes of easing global trade tensions. More notably, over the past weekend, the United States and the European Union reached a framework trade deal aimed at averting a full-blown trade war, agreeing to impose a 15% tariff on most goods instead of the higher rates previously feared.
This wave of optimism has led to a temporary outflow of capital from safe-haven assets like gold into riskier assets such as equities. As a result, gold—which traditionally serves as a hedge against uncertainty—has lost some of its upward momentum in the short term.
Despite this clear downward pressure, the market remains somewhat cautious, particularly in light of the current stance of the U.S. Federal Reserve. Recent economic data has been mixed: while initial jobless claims were better than expected, manufacturing indicators have shown clear signs of weakness. This has prompted the Fed to maintain a cautious posture, opting to monitor incoming data rather than sending out any decisive policy signals for now.
The Fed’s decision to keep interest rates unchanged suggests that it still harbors doubts about the true strength of the economy. This also implies that gold still has room to recover, especially if upcoming data increases expectations for a potential rate cut.
This week, markets will be closely focused on a series of key economic indicators from the U.S., including: the Core PCE Price Index (the Fed’s preferred measure of inflation), ISM Manufacturing and Services Indices, the Non-Farm Payrolls report, as well as unemployment and average hourly earnings data. These figures have the potential to shape expectations for the Fed’s next policy move. Should the data come in stronger than anticipated—particularly with higher PCE and robust job growth—expectations for prolonged higher interest rates could intensify, putting further pressure on gold. Conversely, if the data disappoints, especially with lower inflation and signs of a cooling labor market, gold may receive strong support as markets price in a possible policy reversal in the coming months.
While economic data continues to apply downward pressure, geopolitical risks around the globe are offering gold some critical underlying support.
In Europe, tensions between Russia and Ukraine continue to escalate, with Ukraine ramping up drone strikes deep into Russian territory, including Saint Petersburg—forcing the temporary closure of its airport for several hours. These developments suggest that the war is far from over, and any further escalation could immediately trigger renewed demand for safe-haven assets like gold.
In the Middle East, Israel has announced the implementation of a “daily humanitarian ceasefire” in densely populated areas of Gaza—an indication of mounting international pressure and the severe humanitarian situation in the region. However, the fragile nature of this ceasefire leaves the door open for renewed conflict at any moment.
These uncertainties are likely to continue providing gold with a strategic defensive position in the medium to long term.
Overall, gold prices are currently facing short-term downward pressure due to improved market sentiment regarding global trade prospects and expectations that the Fed will not ease policy imminently. However, persistent geopolitical risks remain a powerful supportive factor that helps gold maintain a firm price floor. This week’s economic data releases will be crucial in determining gold’s next directional move. As such, investors should closely monitor upcoming releases and headlines in order to maintain a flexible and responsive investment strategy.