Gold Prices May Fall Below $3,000

U.S. Dollar Rally Stalls

The U.S. dollar has given up some of its recent gains following a truce in the U.S.-China trade war. This agreement has renewed investor optimism about the U.S. economy’s growth outlook, which had previously been dampened by escalating trade tensions.

A key driver of the dollar’s decline was the April Consumer Price Index report, which showed a slight drop in headline inflation from 2.4% to 2.3%, while core inflation held steady at 2.8%. The moderation in inflation, bringing it closer to the Federal Reserve’s 2% target, could ease a major constraint on future interest rate cuts, particularly if the U.S. labour market begins to weaken. Nonetheless, markets continue to price in only two rate cuts over the next two years, with no expectations yet for a third.

All Eyes on the Fed’s Chairman

Investors will tune in the Federal Reserve Chairman’s speech today. Markets will be looking for signals on whether the recent U.S.-China trade war’s truce will influence the Federal Open Market Committee’s outlook specifically, whether the Fed sees the need for prompt intervention through rate cuts or prefers to maintain its current stance and wait for further developments. A continued delay in cutting rates could lend support to the U.S. dollar, which in turn may place additional downward pressure on precious metals, including gold.

Gold prices have already softened due to declining demand for safe-haven assets, as geopolitical tensions ease. The U.S.-China truce, a ceasefire between India and Pakistan, and the prospect of direct negotiations between the presidents of Ukraine and Russia have all contributed to reduced geopolitical risk. However, the situation remains uncertain, as the European Union has warned it may impose new sanctions on Russia if peace talks fail.

How Could Gold Prices Fall Below $3,000 Per Ounce?

Last week, gold prices reversed their upward momentum, forming a lower high at $3,435. The price then entered the current trading range between $3,357 and $3,127 and may be on course to test the low end of this zone, particularly if it breaks the neckline of a double top pattern at $3,202. A daily close below the low end of the current trading zone located at $3,127 could encourage selling pressure, potentially driving the price down to $2,955.

Levels to Watch in a Opposite Scenario

A daily close above the high end of the current trading zone located at $3,357 would indicate a bullish comeback, potentially pushing gold toward the $3,500 mark. In this case, the resistance level at the May 6 high of $3,435 should be considered.

Gold price – Daily Chart

Chart Source: ADSS Platform