The price of gold (XAU/USD) fell sharply on Monday, sliding to a one-week low near $3,300 before stabilizing. A modest recovery in the US Dollar at the start of the week is a key factor pulling investors away from the non-yielding precious metal. However, the bearish momentum appears limited as traders weigh looming risks — both economic and geopolitical — that continue to bolster the appeal of safe-haven assets like gold.
Despite the intraday decline, underlying factors such as expectations for a dovish US Federal Reserve, concerns over America’s ballooning fiscal deficit, and fresh military escalations in the Middle East are helping to cushion the downside in gold.
USD Strength Casts a Shadow on Bullion
The greenback saw renewed demand on Monday, backed by a modest uptick in risk aversion and a sense of caution ahead of a week packed with potential catalysts — including the release of the FOMC minutes on Wednesday. The US Dollar Index (DXY) rose slightly as investors trimmed bearish bets, dragging the price of gold down from last week’s highs.
Still, USD gains are likely to be temporary, as the broader macroeconomic narrative favors monetary easing later this year. Interest rate futures show markets are pricing in a 70% probability of a Fed rate cut in September, with at least two 25 bps cuts expected by year-end. These expectations act as a counterweight to the Dollar’s strength and prevent deeper losses for gold.
Trump’s Tax-and-Spend Plan Raises Debt Red Flags
The Dollar’s upside is also being capped by growing concerns over US fiscal sustainability. President Donald Trump’s recently signed “One Big Beautiful Bill” — a sweeping tax-cut and infrastructure spending plan — is expected to add an estimated $3.4 trillion to the national debt over the next decade.
While fiscal expansion may provide short-term economic stimulus, it could also raise long-term borrowing costs and pressure US sovereign ratings. These fears could gradually undermine the greenback and boost the appeal of gold as a hedge against fiscal instability.
Tariff Warnings Stir Market Jitters
In a move that unsettled markets further, Trump announced on Monday via social media that official tariff letters and trade deal notifications would begin distribution at 12:00 P.M. July 7th. He followed with a stark warning: any country cooperating with BRICS’ anti-American economic agenda would face an additional 10% tariff, without exception.
This protectionist tone sent a chill through global markets and reinforced investor demand for defensive assets. Gold, often seen as a shield during global trade conflicts, found bids despite initial selling pressure. The tariff announcements serve as a reminder of Trump’s unpredictability on trade — a persistent wild card for risk markets.
Middle East Escalation Lends Gold Support
Adding to the market’s caution, the Israeli military conducted air strikes on Houthi-held positions in Yemen early Monday, marking the first such action in nearly a month. Targets included three key ports and a power station used by the Iran-aligned group.
The strikes were in response to continued Houthi drone and missile attacks on Israel, and they revive fears of broader Middle East conflict. Rising geopolitical tension, especially involving Iran, often bolsters demand for safe-haven assets, with gold typically among the primary beneficiaries. As such, the $3,300 level is likely to act as a strong support zone unless geopolitical tensions de-escalate dramatically.
Fed Dovish Pivot Still in Play
While the Dollar has seen temporary strength, the Federal Reserve remains on a path toward monetary easing. Recent weak US macro data — including soft consumer spending and a cooling labor market — have reinforced bets that the Fed may cut rates as soon as September.
The upcoming Federal Open Market Committee (FOMC) minutes, set for release on Wednesday, will offer deeper insight into policymakers’ thinking. Traders will closely analyze language around inflation expectations, labor market slack, and global economic risks. Any dovish leanings in the minutes could weaken the Dollar and breathe life back into gold bulls.
Market Sentiment Still Fragile
Market confidence remains shaky due to the uncertain trajectory of US fiscal and trade policy. With Trump escalating tariff threats and pushing forward aggressive tax-cutting legislation, markets are caught between hopes for growth and fears of fiscal overheating and global retaliation.
In this environment, gold remains a key portfolio hedge. Its role as a store of value during both inflationary and geopolitical turbulence makes it an attractive alternative amid market unpredictability.
Technical Outlook: Gold Holds the Line at $3,300
Technically, gold remains vulnerable in the short term, with downside momentum building following last week’s rejection near $3,360. Monday’s retreat tested key support at the $3,300 psychological level, which coincides with the 20-day moving average.
A sustained break below $3,300 could expose the next support zone near $3,270. On the upside, resistance lies at $3,340 and then $3,360 — the recent swing high. However, bullish follow-through would likely require a clear dovish signal from the Fed or a fresh geopolitical jolt.
Investor Focus Turns to FOMC Minutes and Tariff Execution
With traders already pricing in two rate cuts this year, attention now turns to forward guidance clarity in the FOMC minutes. Meanwhile, markets remain on high alert for the actual implementation of Trump’s announced tariff actions and the global response to his anti-BRICS rhetoric.
These factors will play a pivotal role in shaping sentiment toward both the US Dollar and gold. As such, the next 48 hours may prove decisive for short-term positioning in the precious metals market.
Conclusion
Gold remains under pressure in the short term due to Dollar strength and technical selling. However, the broader outlook remains constructive amid dovish Fed expectations, US fiscal concerns, and growing geopolitical instability. The precious metal’s ability to hold above $3,300 suggests investors are not ready to abandon it yet especially with multiple macro and geopolitical catalysts on the horizon.
Disclaimer: This blog is for informational purposes only and does not constitute financial advice. Always conduct your own research and consult a professional advisor before making investment decisions.
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