Gold Price Nears $3,500 Amid Trade War Escalation and Fed Chaos

XAU/USD Faces Critical Breakout as Trade War Heats and Dollar Wobbles

Gold Edges Toward $3,430, But Momentum Stalls Below $3,500 Barrier

Spot gold (XAU/USD) pushed to an intraday high of $3,430.41 on Tuesday, marking a five-week peak, as escalating US-EU trade friction and softer Treasury yields ignited demand for safe-haven assets. Despite the early rally, the metal remained confined below the crucial psychological ceiling at $3,500, the April record. Futures mirrored this strength, closing at $3,441.20 on COMEX. However, despite a 1% intraday surge, price action revealed hesitation around the $3,400 threshold as macro risks swelled but did not yet fully trigger fear-based inflows.

Trade Uncertainty and Yield Compression Support Gold’s Risk Bid

With the yield on the 10-year US Treasury dropping to a two-week low, investors shifted toward non-yielding assets like gold. This yield compression, alongside Treasury Secretary Scott Bessent’s announcement of delayed tariff deadlines and an aggressive global trade agenda, added fuel to bullion’s gains. Simultaneously, growing friction with the European Union, including Germany’s vow for retaliation—“If they want war, they will get war”—escalated global instability. These geopolitical risks have reignited a defensive rotation into XAU/USD, particularly as prospects for a US-EU trade agreement weaken ahead of the August 1 tariff escalation deadline.

Fed Chaos: Powell Under Fire, Rate Path Uncertain as Inflation Bites

Market sentiment is further destabilized by intensifying pressure on the Federal Reserve, with a Truth Social denial from President Trump over plans to fire Jerome Powell, contradicting insider chatter. Meanwhile, Republican Rep. Luna formally accused Powell of perjury, amplifying political risks surrounding monetary policy. Inside the Fed, Governor Waller called for an immediate rate cut due to “mounting risks,” while Governor Kugler argued tariffs are beginning to pass into CPI and urged restraint. This policy chaos injects further uncertainty into yield expectations, boosting gold’s safety premium. Traders now assign just a 58.3% probability of a Fed rate cut in September, down from 69.6% a month prior, as inflation shows sticky signs linked to imported goods.

Technical Picture: Gold Consolidates Below $3,500, Eyes Channel Breakout

Technically, XAU/USD is trading inside a bullish ascending channel. Key support lies at the 9-day EMA of $3,358, followed by the 50-day EMA at $3,316. The RSI remains above 50, reinforcing upside bias, though lacking the momentum needed to punch through $3,452 (June high) and challenge the April peak. A breakout would open up the next leg toward $3,630, the upper band of the channel. Conversely, a failure below $3,358 would threaten a reversal toward $3,245, the May 29 low.

A parallel setup emerges from the Symmetrical Triangle pattern, where price is compressing between an uptrend from the $3,121 low (May 15) and downtrend from the $3,500 high (April 22). A confirmed daily close above the triangle and above $3,400 would unleash breakout potential of $386, projecting price toward $3,800 in the coming weeks. Momentum remains strong, but buyers must force acceptance above resistance to validate the structure.

Central Banks and Space for Accumulation Keep Floor Intact

Gold’s pullbacks continue to find support from persistent central bank demand. Although net purchases have slowed slightly, sovereign accumulation remains solid in Asia and the Middle East. The price of gold jewelry, too, is becoming an invisible pillar of support—retail investors are unknowingly holding significant unallocated gold positions via personal collections. Analyst Scott Travers cautions against overexposure but sees justification for 5–15% portfolio allocation, especially amid geopolitical spikes like the one unfolding now.

Dollar Index (DXY) Loses Grip as 97.90 Support Gets Tested

The US Dollar Index (DXY) lost more than 0.5% before recovering slightly, trading near 97.90 on Tuesday. The 100-day MA is holding, but barely. If the DXY slips below 97.67, gold could explode higher, particularly if the next supports at 97.26 and 96.90 break down. With speculative positioning skewed to short USD, further downside in the Greenback would elevate XAU/USD beyond the current $3,400 battle zone. Fed missteps and tariff headlines could catalyze such a move.

Sentiment Mixed as Traders Wait for a Catalyst

Client sentiment is near parity, with 51% net-long on OANDA data, highlighting indecision. This equilibrium reflects a market still digesting rate signals and political risk. Contrarian positioning suggests bulls may gain the upper hand if sentiment shifts, especially if Powell faces removal or Fed commentary turns explicitly dovish.

Historical Price Context and Macro Drivers

Gold has soared 42% year-over-year, from $2,402.10 on July 22, 2024, to current levels near $3,390–$3,430. Over the past month, XAU/USD gained 1.8%, and the past week alone saw a 2.1% advance. Analysts at Goldman Sachs still project an upside target of $3,700 by year-end, citing trade risk, central bank accumulation, and a weaker dollar as driving themes. Notably, prices are just $70 below the April record of $3,500.05.

Buy, Sell, or Hold Verdict on Gold (XAU/USD)

Gold remains in a structurally bullish trend, supported by inflation uncertainty, central bank accumulation, and geopolitical volatility. As long as the metal stays above $3,358, the technical posture remains constructive. However, a decisive break above $3,452 and confirmation over $3,500 is needed for a full bull resumption. Given macro drivers, technical setup, and rising political instability, XAU/USD is a BUY on dips, with near-term target at $3,500, mid-term scope for $3,630, and bullish extension to $3,800 if the triangle pattern confirms.

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