Gold prices increased nearly 2% in one day and 5% for the week as the US Dollar weakened. XAU/USD climbed to $3,359, recovering from a low of $3,287. Donald Trump escalated trade tensions with the EU, threatening 50% tariffs starting June 1. The ‘One Big Beautiful Bill’ passed the US House, potentially raising the debt ceiling by almost $4 trillion.

Geopolitical Tensions

A ceasefire agreement in Ukraine is reportedly making progress, while US-Iran nuclear talks continue in Rome. May’s US housing data was mixed; building permits decreased, but new home sales increased. The upcoming US economic schedule will include Durable Goods Orders, GDP estimates, and the Core PCE Price Index. The US Dollar Index dropped 0.66%, which helped boost gold prices. Gold is targeting $3,400 after Moody’s downgraded US debt from AAA to AA1. The RSI shows strong bullish momentum, with resistance levels at $3,400, $3,438, and a high of $3,500. If gold drops below $3,300, it might head toward $3,204, near the 50-day SMA at $3,199. Trade wars usually create economic conflicts due to protectionism, leading to higher import costs and living expenses.

Impact Of Trade War

The US-China trade war started in 2018, with tariffs impacting many industries. Renewed tensions are being speculated, as tariff proposals could affect the global economy. This article highlights a shift in gold’s short-term trend, driven by a weaker US Dollar and rising geopolitical tensions. A weaker dollar—this time down 0.66%—makes gold cheaper for foreign buyers, leading to increased purchases. This shift helped XAU/USD rebound from $3,287 to $3,359, a notable 5% rise over the week. Such significant gains usually occur amidst ongoing market worries. Trump’s comments about possible 50% tariffs on European cars will likely create caution across commodities and FX markets. This type of rhetoric raises volatility and forces a reevaluation of short-term expectations. Risk-averse behavior tends to increase when political developments go beyond mere threats. It’s not just about the tariffs; it’s about escalating tensions that shake investor confidence and push demand towards safe-haven assets. The recent US bill proposing a nearly $4 trillion increase in the debt ceiling shouldn’t be seen as ordinary fiscal policy. Moody’s decision to downgrade the US from AAA to AA1 unsettled markets. This downgrade is significant and reflects larger spending trends that may reintroduce inflationary risks many thought were gone. We also need to consider ongoing discussions between the US and Iran, as well as developments in Ukraine. Even if these are just draft agreements or discreet negotiations, they can quickly shift market sentiment, especially when demand for safe havens rises. News of progress, regardless of its finality, often leads to a pullout from riskier investments. Economic indicators, such as May’s mixed housing data, are relevant but complex. A drop in building permits shows developer caution, while an increase in new home sales creates contrasts that add to uncertainty. With the upcoming releases of Durable Goods Orders and GDP estimates, we expect more volatility, particularly around the Core PCE Price Index. This data is closely monitored by US policymakers and could influence interest rate expectations later this year. Gold reserves are significant. The RSI indicates bullish momentum, heading towards overbought conditions but not at extreme levels. The market is eyeing $3,400 for resistance, followed by $3,438 and $3,500. These targets are based on previous peaks and Fibonacci extensions. On the downside, watch for caution if prices fall below $3,300. A drop under this level could lead to $3,204, near the 50-day simple moving average at $3,199. Weakening momentum might suggest a reversal, especially if yields stabilize or geopolitical tensions ease. Trade war rhetoric should be taken seriously. As seen since 2018 with the US-China conflict, tariffs can quickly change market dynamics. Protectionist measures often have wider effects, raising costs, limiting imports, and complicating inflation control. Therefore, in this environment, caution is essential—it’s clear from the week’s market trends. Initial focus will be on price movements around the PCE data, followed by assessing the strength of resistance levels. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now