Gold (XAUUSD) extended its bearish momentum on Friday, retreating below the $3,300 level for the first time in four weeks. The recent downturn comes as global risk appetite has improved significantly following the announcement of a ceasefire between Israel and Iran — a move that has softened geopolitical tensions and dented demand for safe-haven assets such as gold.
The yellow metal, known for its resilience during periods of uncertainty, has found itself caught in the crosscurrents of conflicting market drivers. While optimism in equity markets and improved geopolitical stability have eroded its traditional appeal, a weak US Dollar and heightened uncertainty surrounding the Federal Reserve’s independence continue to offer a cushion to the downside.
US PCE Inflation Data in Focus for Gold Traders
With gold hovering near technical support, traders are now turning their attention to the upcoming release of the US Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred inflation gauge. Scheduled for later today, the PCE data could play a pivotal role in shaping expectations about the Federal Reserve’s next policy moves.
Market consensus expects a modest 0.1% monthly gain in core PCE for May and a 2.6% annual increase, keeping it well above the Fed’s 2% target. If the data surprises to the upside, it could bolster the case for a more cautious Fed, potentially delaying rate cuts — a scenario that would likely weigh on gold prices in the near term.
Conversely, a weaker-than-expected inflation print may renew speculation about a July rate cut and boost demand for the non-yielding yellow metal.
US Economy Flashes Warning Signs: Weak GDP and Labor Market Signals
Recent economic data out of the United States paints a fragile picture. According to the final Q1 GDP estimate released by the Commerce Department, the economy contracted at an annualized pace of 0.5% — worse than the previous estimate of a 0.2% decline. The deterioration reflects soft consumer spending and growing disruptions from tariffs, which have started to bite into real economic activity.
On the labor front, while initial jobless claims declined modestly to 236,000, the more telling indicator — continuing jobless claims — surged by 37,000 to nearly 1.974 million, the highest since November 2021. This divergence underscores a slowdown in hiring and may indicate rising friction in the labor market.
Such signals, if sustained, could push the US unemployment rate higher — potentially to 4.3% in June — and reinforce expectations that the Fed may have to pivot toward easing sooner than previously planned.
Rate Cut Bets Pressuring the US Dollar, Supporting Gold
The combination of weak economic growth, rising unemployment, and softening inflation has driven a broad decline in the US Dollar, pushing it to its lowest level since March 2022. A soft USD is typically supportive for gold, as it makes the metal cheaper for foreign investors.
Moreover, interest rate futures markets are now pricing in a strong possibility of a rate cut as early as July, with some traders betting on multiple cuts by the end of 2025. The resulting decline in real yields — already retreating from their recent highs — enhances the attractiveness of non-yielding assets like gold.
Fed Caught Between Politics and Inflation
A major source of market tension comes from mounting political pressure on the Federal Reserve. Fed Chair Jerome Powell, in recent comments, emphasized the need for patience, noting that the central bank is closely monitoring how tariff policies are affecting prices before deciding on rate cuts.
However, President Donald Trump has publicly criticized Powell’s stance and is reportedly considering naming a successor as early as September or October, stoking fears of political interference. These developments have raised concerns about the Fed’s independence, a cornerstone of investor confidence.
A politicized Fed could potentially tilt toward looser monetary policy to support short-term growth objectives — a prospect that undermines the USD and favors gold in the longer term.
Geopolitical Calm, But Uncertainty Lingers
While the Israel-Iran ceasefire has temporarily defused one geopolitical flashpoint, the broader landscape remains far from stable. Tensions in East Asia, ongoing Russia-Ukraine conflict, and the uncertainty surrounding global tariff regimes still pose risks that could reignite safe-haven demand.
Furthermore, the 2025 US presidential election is already influencing market dynamics. With Trump expected to make more direct interventions in monetary policy and international trade, markets could be poised for heightened volatility later in the year another tailwind for gold.
Technical Analysis: Gold Eyes Support Near $3,280
From a technical perspective, gold is currently testing support in the $3,280–$3,300 zone, with the next major level seen near $3,250. A break below this threshold could open the door to further losses toward $3,200, although strong buyer interest is expected on dips.
On the upside, a sustained recovery above $3,330–$3,340 could pave the way for a test of the $3,375–$3,400 area. Given the current macro backdrop, any decisive movement will likely be data-driven — with today’s PCE release acting as the immediate catalyst.
Conclusion: Bias Still Tilted to the Upside
Despite short-term weakness, the broader outlook for gold remains constructive. A weakening US economy, political risks to Fed independence, and a softening dollar all create a favorable backdrop for gold in the coming months.
The key short-term driver will be the PCE inflation report. A dovish surprise could trigger a quick rebound above $3,300, while an upside inflation beat might pressure the metal temporarily — though political concerns could limit any USD gains and reinforce gold’s medium-term uptrend.
Gold is declining due to improved global risk sentiment, especially after the Israel-Iran ceasefire, which has reduced safe-haven demand.
The PCE Price Index is the Fed’s preferred measure of inflation. It influences interest rate decisions, which in turn affect gold prices due to their impact on the USD and yields.
Market expectations are leaning toward a possible rate cut in July, especially after weak Q1 GDP and rising continuing jobless claims. However, it depends on upcoming inflation data, including today’s PCE report.
