Gold Trading Down as the Dollar Rises With Trade Tensions Easing and the Fed Holds Rates Steady

The price of gold faced downward pressure in early May 2025, driven by a strengthening U.S. dollar and easing trade tensions between the U.S. and China. Despite geopolitical risks and central bank buying supporting its safe-haven appeal, the yellow metal retreated from recent highs as markets digested mixed signals from monetary policy and geopolitical developments.

Gold’s Recent Performance: Volatility Amid Mixed Signals

Gold prices fell over 1.5–2% on May 9, 2025, dropping to $3,373.04 by the New York trading session. Earlier in the day, the XAU/USD pair had surged 2.89% to $3,341.30 on expectations of a dovish Fed decision. However, Federal Reserve Chair Jerome Powell’s caution on rate cuts and improved risk appetite from U.S.-China tariff talks dampened momentum.

In India, gold prices plummeted ₹1,709 per 10 grams (1.7%) to an intraday low of ₹95,381, reflecting global dollar strength and local market dynamics. Analysts noted that prices could stabilize between ₹96,000–₹97,000, with resistance at ₹97,500 and support at ₹92,000.

The Dollar’s Surge: A Key Headwind for Gold

The U.S. Dollar Index (DXY) rose to 100—its highest level in months—after Powell emphasized the Fed’s “wait-and-see” approach to rate adjustments. A stronger dollar typically pressures gold, as the two assets are inversely correlated. The Bloomberg Dollar Spot Index also climbed 0.5%, exacerbating gold’s decline.

The dollar’s ascent was fueled by reduced fears of an imminent Fed rate cut, which had previously buoyed gold. Real yields (U.S. TIPS) held steady at 2.029%, while 10-year Treasury yields hovered near 4.291%, further weighing on non-yielding assets like gold.

Fed Holds Rates Steady—No Immediate Relief for Gold

The Federal Reserve kept its benchmark rate unchanged at 4.25–4.5%, marking the third hold in 2025. While markets had priced in a potential cut by July, Powell’s emphasis on “data dependence” and risks from trade tensions tempered expectations.

The FOMC cited ongoing inflationary pressures and geopolitical uncertainties as reasons to maintain rates. However, swap markets still priced in a 25-basis-point cut by July, with two more anticipated by year-end. This duality—caution from the Fed versus market optimism—created volatility for gold.

Trade Tensions Easing, but Geopolitical Risks Remain

Announcements of U.S.-China tariff talks in Switzerland eased market fears, boosting the dollar and pressuring gold. However, unresolved issues, such as proposed U.S. tariffs on Chinese films, kept geopolitical tensions simmering. Conflicts in Ukraine, the Middle East, and South Asia also sustained gold’s safe-haven demand.

Central banks continued to accumulate gold, with China adding 2 tonnes to reach 2,294 tonnes in April, while Poland and the Czech Republic increased their reserves. Total central bank purchases in 2022 hit 1,136 tonnes, signaling a long-term bullish trend for gold as a reserve asset.

Technical Outlook: Gold’s Narrow Range and Critical Levels

Gold remains trapped in a narrow $3,350–$3,400 range, with bulls needing to reclaim $3,400 to challenge the $3,500 all-time high. A breach below $3,350 could trigger a drop to $3,202 (May’s low) or even the $3,113 50-day SMA.

In India, the ₹96,000–₹97,000 range is critical for determining near-term direction. A sustained break above ₹97,500 would signal renewed buying momentum, while a close below ₹92,000 could indicate deeper corrections.

Conclusion: Gold’s Bull Run Faces Near-Term Headwinds, but Fundamentals Remain Intact

Gold’s recent dip is a correction rather than a reversal of its long-term bullish trajectory. While the dollar’s strength and trade optimism have pressured prices, central bank purchases, geopolitical risks, and low real yields continue to underpin its value.

Key data points underscore this duality:
- Central banks added 12+ tonnes in April alone, signaling ongoing demand.
- Geopolitical conflicts in 6+ regions maintain gold’s safe-haven appeal.
- The Fed’s cautious stance leaves the door open for rate cuts later in 2025, which could reignite gold’s rally.

Investors should monitor the $3,350–$3,400 range closely. A breakout above $3,400 could propel gold toward $3,500, while a sustained drop below $3,350 might test $3,200. In the long term, structural factors—deglobalization, currency diversification, and inflation—remain bullish for gold. For now, the metal’s fate hinges on trade negotiations, Fed communication, and geopolitical developments.

In summary, gold’s near-term struggles are part of its cyclical volatility, but its role as a crisis hedge and reserve asset ensures it remains a cornerstone of diversified portfolios.