Gold Price Holds Firm Above $3,200 as US-China Trade War Escalates and Dollar Weakens.

Gold price (XAUUSD) continues to trade with a positive bias, holding ground around the $3,225 mark early Tuesday, following a brief pullback from Monday’s all-time high. While the upside momentum has slowed, the overall sentiment remains bullish, primarily underpinned by a combination of deepening geopolitical risks, expectations of multiple Federal Reserve rate cuts, and a weakened US Dollar.

Markets are reacting cautiously to President Donald Trump’s unpredictable tariff policy, particularly his latest decision to temporarily exempt key consumer electronics from fresh levies. Although this has improved near-term risk sentiment, the broader concerns over the intensifying US-China trade war and its long-term implications for global growth continue to provide a solid floor for gold.

US-China Trade Tensions: The Catalyst Behind Gold’s Surge

The ongoing tit-for-tat tariff exchange between the world’s two largest economies has emerged as a major market-moving factor. The situation escalated sharply last Friday when China slapped retaliatory tariffs on US imports, raising duties to 125%, a move that came in direct response to Trump’s decision to hike US tariffs on Chinese goods to an unprecedented 145%.

While the White House attempted to ease market concerns by announcing temporary exemptions for smartphones, laptops, and other electronics, investors remain wary. President Trump also stated that the auto industry could be granted similar relief, giving companies more time to localize supply chains. However, he clarified that these reprieves are temporary and warned of new tariffs on imported semiconductors and pharmaceuticals in the near future.

This mixture of uncertainty and economic disruption is increasingly fueling investor appetite for safe-haven assets like gold. As trade tensions show no signs of de-escalating, market participants continue to hedge against a potential global slowdown and further supply chain shocks, both of which amplify gold’s appeal as a store of value.

Fed Rate Cut Bets and Recession Fears: A Double Tailwind for XAUUSD

In parallel with geopolitical worries, the market is also pricing in a dramatic shift in US monetary policy. There is growing consensus among investors that the Federal Reserve will initiate an aggressive rate-cutting cycle in 2025, possibly slashing interest rates three or more times to counteract the risk of a domestic recession.

These expectations are partly fueled by recent dovish commentary from Fed officials. Governor Christopher Waller acknowledged that Trump’s trade war could deliver a “significant shock” to the US economy, potentially forcing the Fed to act preemptively. Meanwhile, Atlanta Fed President Raphael Bostic emphasized that inflationary pressures tied to tariffs could complicate the Fed’s policy response, limiting their ability to make bold moves either way.

In light of these developments, the US Dollar remains under pressure, unable to mount any meaningful recovery. A softer greenback typically provides further support to gold, as it lowers the opportunity cost of holding non-yielding assets and makes the metal cheaper for foreign investors.

Market Sentiment: Risk-On Relief is Fleeting

Despite the growing appeal of gold, it’s worth noting that the metal’s rally could face intermittent resistance. The temporary exemptions announced by Trump last week and his willingness to consider industry-specific relief have sparked a modest rebound in global risk sentiment. Equities in Asia and Europe edged higher in early trading, and bond yields showed signs of stabilization.

However, the relief rally is fragile and likely short-lived. Trump’s track record of policy reversals and unpredictable announcements has left investors on edge. With new tariffs on semiconductors expected soon—and pharmaceuticals possibly next—any gains in risk assets could quickly reverse, pulling support back toward gold.

Moreover, underlying demand for physical gold from central banks and institutional investors remains robust, adding another layer of support. According to recent data from the World Gold Council, central bank gold purchases hit a new high in Q1 2025, driven by diversification needs amid mounting currency volatility and inflationary concerns.

Technical Outlook: Gold Bulls Maintain Control Despite Minor Pullbacks

From a technical perspective, the XAUUSD pair remains comfortably above key psychological and structural levels, particularly the $3,200 threshold. While the metal faces some resistance near the record high set on Monday, momentum indicators suggest continued upside in the medium term.

A sustained move above the $3,240 region—Monday’s peak—could open the door for a rally toward the $3,300 handle. On the downside, initial support is now seen at $3,180, followed by stronger demand around $3,150, which served as a breakout zone last week.

The broader trend continues to favor bulls, as long as real yields remain suppressed, inflation expectations stay elevated, and the Fed maintains a dovish stance amid political uncertainty.

Looking Ahead: Data and Fed Speak in Focus

All eyes are now on the upcoming Empire State Manufacturing Index, set for release later today. While this data point rarely delivers a major market shock, any sharp deterioration in US manufacturing activity could further reinforce rate cut expectations and lend additional strength to gold.

More importantly, markets are awaiting Fed Chair Jerome Powell’s speech on Wednesday, which could provide vital clues about the central bank’s thinking in light of rising tariffs and slowing growth. Should Powell hint at a more aggressive policy stance, gold could quickly reclaim its all-time highs and extend its bullish run.

Traders will also be closely monitoring headlines from the White House and Beijing, as any sign of escalation or breakthrough in trade negotiations could lead to significant short-term moves in the XAUUSD pair.

Conclusion: Gold Rally is Fundamentally Backed, but Volatility Looms

Gold’s recent price action is not merely a knee-jerk reaction to headline risk—it reflects a broader structural shift in market dynamics. With recession fears, policy uncertainty, and dollar weakness all converging, gold has reestablished itself as a go-to safe haven in turbulent times.

That said, traders should brace for volatility ahead, especially as new tariffs rolled out and the Fed faces mounting pressure to act. In this environment, gold is likely to remain supported in the near term, with the path of least resistance tilted to the upside, albeit with intermittent pullbacks on improved risk sentiment.