Gold (XAU/USD) is currently trading lower at approximately $3,368, down from a weekly high of $3,452. Even with this drop, long-term demand remains strong due to central banks and ongoing geopolitical tensions. The World Gold Council’s annual survey revealed that 73 central banks are increasingly interested in gold, with most expecting to raise their global reserves. A significant 95% of the banks surveyed anticipate an increase in reserves, while over 40% plan to buy more gold.

Interest Rate Updates

The Federal Reserve, European Central Bank, and Bank of England have recently provided cautious updates on monetary policy, indicating that interest rates may remain high. The strength of the US Dollar and firm Treasury yields are putting short-term pressure on gold prices. US President Trump has begun discussions about military strategies, increasing tensions in energy-rich areas like the Strait of Hormuz. Any disruption in these regions could affect oil flow and cause prices to rise, putting pressure on inflation. From a technical standpoint, gold is in a retracement phase, testing the 20-day Simple Moving Average at $3,350, with potential further declines. Resistance levels are noted at $3,371 and $3,400, while a sustained increase could bring gold prices back up to around $3,500. The Relative Strength Index indicates a decrease in buying momentum. Although gold prices have retreated from recent highs, they remain high historically. The drop from $3,452 to $3,368 is partly due to stronger Treasury yields and a stronger US Dollar, leading to short-term selling pressure. However, those looking at the bigger picture can see that ongoing official sector demand and political unrest are maintaining underlying strength. Data from the World Gold Council shows that central banks are still very active in accumulating gold. Nearly 75% of surveyed banks show increased interest, and about 40% are planning to make additional purchases, indicating that institutional demand is still robust. This provides long-term support, even as corrections may occur in the short term.

Geopolitical Risks and Gold Prices

The cautious tone from leaders like Bailey and his counterparts has dampened expectations for interest rate relief. High borrowing costs hinder gold’s rally, especially in tandem with a persistent Dollar strength. This combination typically weighs against gold, which doesn’t yield returns. However, macro factors, such as inflation stability and real wage changes, could gradually alter this over the third quarter. Geopolitical risks add complexity to the situation. Discussions among Washington leaders suggest a stronger focus on military readiness in key export regions. Concerns over potential disruptions to oil corridors might also lead to increased commodity inflation, posing challenges for central banks. Any conflict that disrupts fuel supplies would not only impact crude markets but also influence inflation-hedging assets like gold. Looking at price action, gold is currently at a critical level. The 20-day SMA at $3,350 is serving as a key indicator. It remains uncertain whether buyers will return or if sellers will push prices down further. A breach below this level could lead to deeper declines toward earlier support zones. Conversely, if gold can reclaim $3,400, it might signal a shift in market sentiment, though the RSI indicates dwindling upward momentum. In the next week or two, focus will remain on two key areas: the ongoing strength of the US Dollar and bond yields, alongside developments in Middle Eastern political risks. Both factors could trigger sudden volatility in commodity-related markets. We must consider a scenario where central banks take longer to react, leaving risk assets feeling jittery. Short-dated options will be sensitive to changing inflation data and policy announcements. Currently, market movements depend more on reactions to policy than on intrinsic asset value. This shift necessitates a more responsive trading approach, especially as large institutional flows can greatly influence short-term price changes. We might see this dynamic as June progresses toward FOMC and CPI announcements. Continuously monitor these events and adjust positions as needed. Create your live VT Markets account and start trading now.

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