Gold caught between bearish technicals and bullish long-term fundamentals

Gold has long stood as the ultimate barometer of fear and uncertainty in the global financial system. Yet in recent weeks, it has been facing a perplexing mix of conflicting signals. Despite geopolitical tensions, renewed tariff threats, and a looming shift in global monetary policy, the yellow metal has failed to decisively break past the longstanding US$3,500 per ounce barrier, let alone flirt with the wishfully anticipated US$4,000 mark.

Several macroeconomic and market-specific drivers are at play. Traditionally, gold’s path is mapped against real yields, the US Federal Reserve’s rate expectations, central bank demand, and geopolitical risk. In the current environment, this matrix of influences is sending mixed signals. On one hand, real yields remain sticky, and a stronger US dollar, buoyed by resilient US data and the Fed’s reluctance to ease rates, is suppressing gold’s upside. On the other hand, ongoing tariff tensions and subtle signs of disinflation in the US continue to provide a fundamental floor to prices.

Recent developments in US trade rhetoric briefly triggered a spike in gold prices as markets repriced risk and rushed to traditional safe havens. However, the rally quickly lost steam as US equities rebounded, and the dollar index staged a modest comeback. Gold tends to react quickly to “headlines”, but these tariff-driven surges are often capped by a rebound in broader risk appetite or dollar strength. While tariffs stoke inflation fears by making imports more expensive, the net impact on gold is nuanced. Rising inflation expectations can support the metal, but if they’re seen as manageable or transitory, gold may see pullbacks as sentiment adjusts.

Interestingly, the pace and magnitude of gold’s upside appear more constrained this time. Technically, gold has now failed to breach the US$3,500 level multiple times over the past three months, forming a classic triangle pattern (marked by red trend lines joining recent lower highs and higher lows) suggesting that a volatility breakout is imminent. The odds, however, seem tilted towards a downside breach, barring a fresh geopolitical shock or dovish pivot from the Fed.

Applying a Fibonacci regression from lows of December 2024 to recent highs in April on a continuous gold chart, prices seem to have breached the triangle formation on the downside. Gold now hovers around the FIB level of 23.6 per cent and if the bearish momentum continues it would likely find immediate support at the FIB level of 38.2 per cent.

Investors are beginning to question gold’s current pause, which looks well justified given the bullish fundamentals. Is it a sign of a reversal or merely a breather before the next leg up? However, given the structure of the price chart and the macroeconomic context, this appears more like a period of consolidation ahead of a potential breakout – though patience will be required.

A major complicating factor that remains is the Fed’s policy trajectory. While markets broadly expect the Fed to begin easing rates in 2025, the timeline stays frustratingly uncertain. Without clear dovish guidance or a deterioration in US macroeconomic data, gold bulls may continue to be disappointed in the near term. Yet, when rate cuts do begin, the attractiveness of non-yielding assets like gold is expected to rise substantially.

Moreover, all major trading partners of the US, including the EU, China, and Japan, have shown surprising agility in negotiating softer trade deals, tempering the kind of risk-off sentiment that traditionally drives gold demand. With risk appetite gradually returning to fundamentally strong equities, gold may face further headwinds, especially if bond yields stabilise and economic growth remains resilient.

In summary, gold’s trajectory is caught in a tug-of-war between bearish technicals and bullish long-term fundamentals. Investors should interpret the current consolidation not as a loss of conviction but as a recalibration phase amid rapidly shifting market dynamics. Gold may not have the wind at its back just yet, but the underlying support remains firm, awaiting the right catalyst to ignite the next sustainable rally.

The writer is senior market analyst at Phillip Nova