Gold rallies as global risk sentiment deteriorates ahead of Fed policy update

• Gold gains nearly 2% as Middle East tensions and US trade measures unsettle markets.
• Demand for safe-haven assets rises as the US Dollar weakens ahead of the Fed decision.
• XAU/USD momentum remains firm, though technical signals point to possible consolidation.

Gold (XAU/USD) is rising sharply on Tuesday, supported by a convergence of geopolitical conflict, trade policy uncertainty, and investor defensiveness ahead of Wednesday's Federal Reserve (Fed) interest rate decision and Chair Jerome Powell's press conference. 

At the time of writing, Gold is trading around $3,396 per ounce, up 1.90% on the day and 4.5% on the week, as investors seek refuge from mounting global risks and a weakening US Dollar (USD).

Geopolitical and trade concerns elevate safe-haven demand

The rally in Gold reflects deepening global unease. Israel's expanding military campaign in Gaza, coupled with increased activity by Iranian-backed militias in Iraq and Syria, has raised the risk of a wider regional conflict. These developments have significantly worsened risk sentiment across financial markets, reinforcing demand for defensive assets.

At the same time, trade tensions are flaring. US President Donald Trump's announcement of 100% tariffs on foreign films, alongside proposed restrictions on pharmaceutical imports, has reignited fears of a broader global trade conflict. These measures have already prompted a response from the European Commission, which is preparing retaliatory tariffs targeting US technology and consumer goods.

For markets, the economic consequences are significant: cost pressures, disrupted supply chains, and rising uncertainty -- all of which support Gold as a hedge against systemic stress. Traders are responding with increased hedging, rising demand for volatility protection, and renewed flows into defensive havens, including Gold, the Japanese Yen, and US Treasuries.

Broader global risks and Fed positioning in focus

Political instability in Europe is adding to the risk premium. In Germany, electoral losses for the ruling coalition have triggered internal leadership challenges, fuelling speculation of early federal elections and raising concerns over eurozone policy cohesion.

Meanwhile, Canadian Prime Minister Mark Carney is in Washington for high-level talks with President Trump. Though not directly market-moving for Gold, the meeting underscores the broader context of global diplomatic fragmentation and policy divergence, both of which are increasingly relevant to safe-haven flows.

Federal Reserve outlook: No change expected, but language matters

Although the Federal Reserve (Fed) is not expected to change interest rates at Wednesday's policy meeting, the tone of its forward guidance will be crucial. Traders will scrutinise Chair Jerome Powell's comments for any signals on whether a shift toward rate cuts is under discussion later in 2025.

The absence of hawkish rhetoric would likely reinforce Gold's current trajectory, as lower interest rate expectations reduce the opportunity cost of holding non-yielding assets. Conversely, any pushback from Powell, particularly if he signals concern about inflation re-accelerating, could trigger a reassessment in interest rate pricing and weigh on Gold in the short term.

Today's pre-meeting positioning is evident in currency and fixed income markets. The US Dollar Index (DXY) has fallen to 99.50, while yields on 10-year US Treasuries are softening, both supporting Gold prices. For traders, this environment demands caution: large intraday swings are possible following the Fed's communications, especially if Powell surprises the market.

Gold technical outlook: XAU/USD breakout holds, but upside may stall near $3,423

Gold has resumed its upward trajectory, closing firmly above its 20-day moving average (currently at $3,275) and validating the recent bounce from the 38.2% Fibonacci retracement level of the April move at $3,292. 

The strong bullish candle reflects renewed momentum, with Tuesday's high touching $3,398.

The current rally places immediate resistance at the 14.14% Fibonacci retracement level near $3,423. If this is cleared, bulls may target the all-time high at $3,500, a psychologically and technically significant level.

The Relative Strength Index (RSI) is tracking at 64, indicating positive momentum without yet reaching extreme overbought conditions. This suggests there is still room for additional gains in the near term, though traders should monitor price behaviour near $3,423 for signs of exhaustion.

On the downside, initial support is now reinforced by the 20-day moving average at $3,275. A break below that would expose the horizontal pivot zone around $3,202 and the broader trendline support near $3,167 -- levels that could attract dip buyers if risk sentiment improves.

XAU/USD daily chart