At a Glance
- Gold (XAU/USD) saw a partial recovery during the Asian session, rebounding from a two-week low due to a weaker US Dollar.
- Market expectations for additional US Federal Reserve interest rate cuts are influencing the USD and supporting gold prices.
- Geopolitical risks, including tensions between Russia and Ukraine, provide underlying support for the safe-haven commodity.
- Easing US-China trade tensions are acting as a headwind for gold, limiting further upward movement.
- Traders are adopting a cautious stance ahead of the Federal Reserve’s interest rate decision and forward guidance.
Gold Recovers Amidst Fed Rate Cut Expectations and Geopolitical Tensions
Gold (XAU/USD) experienced a modest recovery during the Asian session on Tuesday, reclaiming some of the previous day’s losses. This rebound occurred as the US Dollar weakened for a second consecutive day, driven by increasing confidence that the US Federal Reserve will implement further interest rate cuts this year. These expectations have provided a key supportive factor for the non-yielding precious metal. Additionally, ongoing geopolitical risks, particularly the protracted conflict between Russia and Ukraine, further bolster the safe-haven appeal of gold.
Trade Optimism and Central Bank Deliberations Shape Gold Market
However, signs of de-escalating trade tensions between the United States and China, the world’s two largest economies, are acting as a counterbalance, capping further gains for gold. Traders also appear hesitant to commit to aggressive directional bets ahead of the anticipated interest rate cut by the US central bank on Wednesday. The primary focus will be on the Fed’s guidance regarding subsequent rate cuts in December or early next year. Consequently, it is prudent to await confirmation of sustained buying before concluding that the recent corrective decline in XAU/USD from its all-time peak has concluded.
Daily Market Movers: Gold Supported by Weaker USD, but Bullish Sentiment Remains Cautious
Expectations for further interest rate cuts by the US Federal Reserve have kept the US Dollar depressed for the second consecutive day, contributing to a modest recovery in gold prices from a more than two-week low.
💡 According to CME Group’s FedWatch Tool, traders have fully priced in a 25-basis-point rate cut by the US central bank at the conclusion of its two-day meeting on Wednesday, along with another reduction in December.
📍 These predictions were reinforced by the latest US inflation data released on Friday, which showed the headline Consumer Price Index and the core gauge (excluding food and energy) increasing by 3% year-over-year in September.
⚡ In response to Russian President Vladimir Putin’s announcement of a successful test of a new nuclear-powered cruise missile, US President Donald Trump issued a warning that the US has a nuclear submarine off the coast of Russia. This development maintains the risk of further escalation in geopolitical tensions and lends support to the safe-haven precious metal, although optimism surrounding US-China trade relations may limit further gains.
📊 Top officials from the US and China agreed on Sunday on a framework for a potential trade deal, which will be discussed when Presidents Trump and Xi Jinping meet this week. This development has eased concerns about a full-blown trade war.
📌 This easing of trade war fears supports a more optimistic sentiment in equity markets, potentially deterring traders from establishing fresh bullish positions in XAU/USD heading into key central bank events this week.
Technical Outlook: Gold Vulnerability Below $4,000
The acceptance of prices below the $4,000 psychological level, coupled with oscillators on the daily chart beginning to show negative traction, supports the case for a further depreciation in gold prices. However, gold bears may await additional follow-through selling below the $3,970 area and the $3,945 region, which corresponds to the 38.2% Fibonacci retracement level of the July-October rally, before initiating fresh positions.
📌 A subsequent decline could accelerate towards testing sub-$3,900 levels, en route to the 50% retracement level situated around the $3,810-$3,800 region, and the 50-day Simple Moving Average (SMA), currently hovering near the $3,775 area.
📍 On the upside, a move beyond the Asian session high, around the $4,019-4,020 region, could be viewed as a selling opportunity and is expected to face resistance near the $4,050-4,055 zone. Sustained strength beyond this area might trigger a short-covering rally towards the $4,109-4,110 region, which aligns with the broken 23.6% Fibonacci retracement level.
⚡ Further buying would negate the near-term negative outlook and could lift gold prices towards the $4,155-4,160 supply zone, continuing towards the $4,200 mark and the next significant resistance level near the $4,252-4,255 region.
US-China Trade War FAQs
What is a trade war?
Generally speaking, a trade war is an economic conflict between two or more countries arising from extreme protectionism. It typically involves the implementation of trade barriers, such as tariffs, which often lead to retaliatory measures, increasing import costs and, consequently, the cost of living.
What is the history of the US-China trade war?
The economic conflict between the United States and China began in early 2018 when President Donald Trump imposed trade barriers on China, citing unfair commercial practices and intellectual property theft. China responded with retaliatory tariffs on many US goods, including automobiles and soybeans. Tensions escalated until the signing of the US-China Phase One trade deal in January 2020, which aimed to restore stability and trust through structural reforms in China’s economic and trade regime. Although the Coronavirus pandemic shifted global focus, President Joe Biden maintained existing tariffs and introduced additional levies.
What are the implications of Donald Trump’s return to the presidency for the US-China trade war?
Donald Trump’s return to the White House as the 47th US President has reignited tensions between the two countries. During his 2024 election campaign, Trump pledged to impose a 60% tariff on China upon his return to office, which began on January 20, 2025. With Trump’s re-entry, the US-China trade war is expected to resume, potentially leading to tit-for-tat policies that could impact the global economic landscape. This could result in disruptions to global supply chains, reduced spending, particularly investment, and contribute to inflation as measured by the Consumer Price Index.
Expert Summary
The gold market is currently experiencing a tug-of-war between supportive factors like a weaker US Dollar and geopolitical risks, and headwinds from easing US-China trade tensions. Investor sentiment remains cautious as they await the US Federal Reserve’s interest rate decision and forward guidance.
Technically, gold shows vulnerability below the $4,000 mark, with potential for further declines if key support levels are breached. Conversely, a sustained move higher could trigger short-covering rallies, but significant upside may be limited by broader market sentiment and central bank policy cues.