• Gold prices trade sideways as US-China trade talks progress and the US Dollar firms.
  • Improved trade relations strengthen the USD, but Iran-nuclear fears limit Gold’s declines.
  • USD and Gold price action remain vulnerable to geopolitical risks ahead of US inflation data on Wednesday.

Gold prices are trading flat against the US Dollar on Tuesday, as markets weigh the improved US–China trade dialogue against rising geopolitical risks.

Talks in London between senior US and Chinese officials have shown encouraging signs of progress, helping to lift risk sentiment and stabilize the US Dollar. 

However, emerging tensions over Iran's nuclear program added a fresh layer of support for Gold, with prices above the $3,300 support level at the time of writing.

On Tuesday, Iranian lawmakers accused the US and Israel of orchestrating a "nuclear trap" ahead of planned negotiations, while former US President Donald Trump warned that further uranium enrichment by Tehran could provoke military action.

Markets look toward US Consumer Price Index (CPI) for the Fed’s next move

The next key event on the US economic calendar will be the release of the Consumer Price Index (CPI) data on Wednesday, which is expected to guide market expectations around the Federal Reserve’s (Fed) rate path. 

Headline inflation is projected to rise to 0.3% month-over-month in May, up from 0.2% in April, with the year-over-year rate climbing to 2.5% from 2.3%. 

Core CPI, which strips out food and energy prices, is also forecast to increase 0.3% MoM, compared to 0.2% previously, with the YoY reading rising to 2.9% from 2.8%. This data is highly significant, as it will play a major role in shaping interest rate expectations, a key driver of both the US Dollar and gold prices

The inflation data is an important contributor to interest rate expectations, which drive the direction of the USD and the Gold price.

Gold daily digest: XAU/USD balances optimistic trade talks 

  • On Tuesday, US Treasury Secretary Scott Bessent, U.S. Trade Representative Jamieson Greer, and Commerce Secretary Howard Lutnick continued their discussions with China’s Vice Premier He Lifeng in London for a second day. 
  • Ahead of Tuesday’s meeting, Commerce Secretary Lutnick told reporters that trade talks with China are progressing well and added that he expects the talks to continue throughout the day, according to Reuters.
  • On Monday, Kevin Hassett, Director of the US National Economic Council (NEC), added to market optimism in an interview with CNBC, stating, “I expect this to be a short meeting with a firm handshake!”.
  • In a Wall Street Journal comment, Hassett noted that the US anticipates “any export control from the US will be eased and the rare earths will be released in volumes.” Once the more significant issues have been addressed, the US and China are expected to discuss less-urgent matters.
  • Additionally, positive remarks on Monday from US President Donald Trump, affirming that he is getting “good reports” from the meeting, are contributing to keeping market sentiment buoyed.
  • Data released by China’s General Administration of Customs (GAC) on Monday showed that China’s exports to the US decreased by 35% YoY in May. This was the steepest decline since February 2020, when trade was severely disrupted by pandemic-related shutdowns.
  • The expectation that China will release rare earths in volume signals potential relief for the US supply chain. These minerals are crucial for sectors such as technology, defense, and green energy, where they are essential for products like semiconductors, electric vehicles (EVs), and military hardware.
  • These developments are significant not only for geopolitical stability but also for global economic growth forecasts.
  • Friday’s Nonfarm Payroll report (NFP), which showed the US economy added more jobs than anticipated in May (139,000 vs. an estimated 130,000), helped ease USD weakness, placing less pressure on the Federal Reserve (Fed) to cut interest rates in the near term. 
  • With stronger employment data increasing the likelihood that the Fed will cut interest rates by 25 basis points in September, the prospect of higher-for-longer interest rates weighs on the non-yielding Gold price, which is inversely correlated with the Greenback.
  • According to the CME FedWatch Tool, market participants expect the Fed to leave interest rates unchanged within the current 4.25% to 4.50% range at the June and July meeting, with a 54.7% probability of a rate cut priced in for September.

Gold technical analysis: XAU/USD remains firm above $3,300

Gold price is currently holding above the $3,300 mark, hovering around $3,330 at the time of writing, as the market finds short-term support in this range. 

On the upside, resistance is forming near the psychological level of $3,350, and a break above this barrier could open the door for a move toward Friday’s high near $3,375. Further up, the $3,392 resistance level limited the bullish potential last week, followed by the $3,400 psychological level. If buyers clear this zone and bullish momentum gains traction, a move toward the April all-time high at $3,500 may be possible.

However, the Relative Strength Index (RSI) indicator flattens near 52 on the daily chart, signalling a lack of momentum and indecision among traders.

In the event of a downside move, the immediate support for the Gold price is at the 20-day Simple Moving Average (SMA) at $3,303, just above the next psychological support zone of $3,300, and ahead of the 23.6% Fibonacci retracement level of the January-April rise at $3,291.

The 50-day SMA could then provide an additional layer of support around $3,270, while the tip of a symmetrical triangle chart pattern could provide another important barrier for downside price action at $3,240.

Gold (XAU/USD) daily chart

US Dollar FAQs

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

Source: Fxstreet