The recent pull-back looks healthy in the current bull run. Geopolitical tensions are likely to be complicated by Trump’s trade and foreign policies, driving haven demand for gold in 2025.

Gold: Still bullish

XAU has lost some of its shine in recent weeks with several reasons for that. Firstly, investors have reassessed their US recession expectations and have pared back their excessively dovish Fed outlook. This, coupled with subsiding inflation expectations has given US real rates and yields a boost. Second, the recent de-escalation on the trade tension including with China and EU reduced the safe heaven demand from investors, despite uncertainty remain over the long-term. In addition, anecdotal evidence has emerged that EM central banks have slowed down their purchases of gold after the de-escalation of the trade tensions between the US and China at the start of May. Last but not least, speculative investors who seemed to be less enthusiastic participants in the gold rally have been cutting their gold XAU longs.

That being said, XAU could continue to trade range-bound in the near term but in still remain bullish in longer-term outlook because the private and official buying of gold could intensify over the summer as focus shifts to the US debt ceiling and the potential market volatility associated with it. In particular, XAU has emerged as the biggest beneficiary during past episodes of US debt-ceiling induced market turmoil. In addition, markets expect the Fed to resume its rate cuts in H225 and even take measures to prop up the US fixed income market in the event US fiscal fears escalate over the summer. This could once again lower US real rates and yields in a boost to gold. Market expectations of a potential dovish Fed pivot have grown despite sticky US inflation and thus pushed down US real rates and yields. Lastly, the USD underperformance could linger as FX investors continue to worry about the prospects for a Mar-a-Lago Accord to depreciate the USD and/or growing fiscal dominance over the Fed. While they doubt that these concerns are fully justified, XAU could remain an important currency-debasement hedge.

XAU/USD 4H

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