Gold prices have been on the rise in the past week, with XAU/USD closing the week up 1.91% ($62.44) at $3,337. The weaker dollar, expectations of a Fed rate cut, and trade policy uncertainties have increased demand for the precious metal. Both fiscal and monetary policy factors have created a favorable backdrop for holding gold.
The weaker dollar has lifted XAU/USD. The U.S. Dollar Index (DXY) has provided significant support for gold, falling to its lowest level since early 2022. The euro is nearing a four-year peak. The weaker dollar has increased the purchasing power of gold for international investors and reinforced its safe-haven demand. As the dollar pulls back, support levels for gold are rising, overlapping technical support around $3,300.
Fed rate cut expectations are strengthening. Rate cut expectations have risen sharply in the past week. According to the CME FedWatch tool, the probability of a September rate cut has reached 91.5%; A total reduction of 65 basis points by the end of the year is priced in. Goldman Sachs also revised its Fed estimates, now predicting 3 interest rate cuts instead of the previously expected 1.
Interest rate cut expectations are reducing the opportunity cost of holding gold and making gold attractive for investors expecting more monetary easing. The massive spending package is increasing demand for protection against debt risks.
The $3.9 trillion fiscal spending package advancing in Congress will add $3.3 trillion to the national debt while making the 2017 tax cuts permanent. Concerns about long-term debt sustainability have strengthened gold’s role as a value hedge. Investors have taken positions against currency depreciation risks by buying gold.
Trade Policy Uncertainty Supports Safe Haven Demand. Trump’s 20% tax on imports from Vietnam and ongoing talks with India have created uncertainty in the market. As the tariff deadline of July 9 approaches, investors are nervous about the threat of tariffs ranging from 10% to 50%. This has increased interest in gold as a hedge against trade disruptions.
Gold Price Forecast: Technical Outlook
Last week's 1.91% increase kept gold above $3,300 due to the weakness of the dollar, high public spending and trade tensions. With the Fed's interest rate cut expectations postponed to September, market attention in the short term turned to the tariff decision on July 9.
Technically, last week's rise ended a two-week decline series, but it has not yet signaled a strong uptrend. Selling pressure continues to remain at $3,451.53 and $3,500.20. On the other hand, the correction zone of $3,166.46–$3,018.52 is seen as a buying opportunity in the event of a possible pullback.
Investors should be alert this week: If tariffs increase safe haven demand, a purchase can be made if $3,451.53 is broken. On the other hand, if there is a decrease, buying can be considered in the $3,166-$3,018 range. For now, gold is supported by strong fundamental data; however, the tariff decision will be the main factor determining the price direction this week.
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