Gold Falls to $3,256 as Inflation, China Deal, and Fed Policy Trigger Technical Breakdown

Gold (XAU/USD) Cracks Below $3,300 as Fed Hawkishness, Geopolitical Thaw, and Inflation Shock Collide

XAU/USD Plunges to $3,256: Breakdown Below Key Averages Sparks Technical Alarm

Gold (XAU/USD) tumbled to a 21-day low of $3,256 late Friday, undercutting multiple key technical thresholds and cementing a shift in short-term structure. The close below three-week support at $3,295 and the 50-day moving average at $3,323.80 marks the first such breach since early January, triggering widespread automated selling and putting bulls on defense.

Losses accelerated sharply after the metal printed a lower high and lower low, confirming a daily and weekly bearish continuation, with price action finishing just above the intraday low. On a technical basis, gold has not only violated upward momentum — it is now positioned beneath two trendline confluences and faces increasing risk of deeper correction toward the $3,245.56 and $3,120.76 support zones.

The weekly loss now stands at 2.8%, while Friday alone saw a 1.6% drawdown, dragging spot gold to $3,274.17 — the weakest close since May 29.

Rising Core PCE and Falling Incomes Send Gold Tumbling as Safe-Haven Thesis Erodes

A critical driver behind the selloff was the unexpected acceleration in the Fed’s preferred inflation gauge. Core PCE rose 0.2% in May, pushing the annualized rate to 2.7%, up from 2.5%. That beat consensus expectations of 2.6% and dealt a blow to hopes of near-term Fed easing. The accompanying report also revealed a 0.4% drop in personal income and a 0.1% decline in consumer spending, reinforcing the narrative of stagflation pressures creeping in.

With bond yields rising in response and the dollar strengthening across G10 peers, gold’s traditional appeal as an inflation hedge was undermined by the weight of opportunity cost. In an environment where real yields continue to rise and the Fed appears locked into a higher-for-longer regime, non-yielding assets like gold face structural pressure.

This perfect storm of deteriorating macro conditions and technical damage left XAU/USD cornered, driving traders out of safe-haven positions and into risk assets which rallied on geopolitical relief.

China Trade Deal on Rare Earths Triggers Risk-On Rotation, Slams Safe Havens

Markets were also jolted by a major de-escalation in U.S.-China trade tension, as both sides finalized a deal for rare earth shipments to the U.S. The agreement significantly lowers the perceived risk of a drawn-out tariff war. Traders interpreted the breakthrough as a pivot toward global economic cooperation — prompting a rotation out of defensive positioning that had previously supported gold through Q2.

“Gold got hit by a double-punch,” said one institutional desk manager. “You’ve got inflation pressure killing the Fed cut narrative, and then China de-escalation eliminating the need for crisis hedging. That’s why this move wasn’t just a dip — it was a capitulation from safe-haven longs.”

Middle East Truce Weakens Crisis Premium, While Ukraine War’s Impact Fades

Gold’s traditional geopolitical bid has further eroded amid sustained calm between Iran and Israel, with the ceasefire still holding beyond its 12th day. Markets that once rallied on conflict headlines are now retracing, and safe-haven flows are evaporating as volatility metrics normalize.

Meanwhile, although the Russia–Ukraine conflict remains unresolved, it has largely been priced into risk models over the past two years, meaning new escalations are required to reinvigorate the crisis premium. With neither theater currently producing new market shocks, gold’s premium for conflict risk has declined.

Monthly Price Structure Flashes Warning: Two Inside Months, One Failing Breakout

A broader view of monthly price structure shows that gold has been in a technical consolidation for the past two months, with June entirely contained inside May’s range — and May inside April’s. Although June momentarily broke above May’s high, it failed to sustain, and is now poised to close at or near the monthly low, currently $3,256.

This double-inside month formation, followed by a downside close, is statistically associated with increased volatility and trend expansion, most often to the downside. Traders are watching for a confirmed breakdown that could send XAU/USD toward $3,100–3,200, particularly if macro headwinds persist.

Pullback Duration Exceeds November Correction: Time-Based Signal Suggests More Downside

The current retracement has now lasted 10 consecutive sessions, making it the longest pullback since the early-November 2024 decline, which lasted 12 days and led to a $270 drop from peak to trough. If the current leg breaches the 12-day threshold, historical patterns suggest a much deeper structural correction could unfold.

Importantly, gold remains above an interim swing low at $3,245, and above an intersecting triple trendline cluster near $3,272, which may act as an inflection point. If XAU/USD loses these levels, the breakdown accelerates. If not, it could serve as a base for recovery — but only if macro data turns supportive.

Dollar Slide and Central Bank Gold Buying Still Offer Tailwinds Into 2026

Despite the near-term pressure, long-term gold bulls have not capitulated. A recent World Gold Council survey shows that 43% of central banks plan to increase gold reserves in the next 12 months. This institutional demand backdrop remains powerful, even as ETFs and retail flows slow.

At the same time, the US Dollar Index (DXY) is still down over 10% YTD, languishing under the 100 threshold. Prolonged weakness in the greenback generally acts as a supportive force for XAU/USD, given gold’s inverse correlation to the currency.

Moreover, Bank of America now forecasts gold to hit $4,000 per ounce in 2026, attributing the move not to war risk, but to mounting fiscal deterioration in the U.S., driven in part by Trump-era tariff policy and deficit expansion. If the Fed is eventually forced to cut aggressively, these forecasts could prove conservative.

From $1,630 to $3,260: Gold’s 100% Rally in 28 Months Faces Its First True Retest

From a historical perspective, gold’s long-term trajectory remains spectacular. Since bottoming at $1,630 in October 2022, spot prices have effectively doubled to $3,260, a 100% gain over 28 months. However, such vertical moves are rarely sustained in straight lines, and the current 2-month decline of ~2% suggests a natural digestion phase, not necessarily a full reversal — yet.

Traders must now weigh short-term weakness against long-term tailwinds. On a tactical basis, XAU/USD remains under pressure and vulnerable to additional losses. But structurally, the metal still benefits from fiat risk, central bank demand, and eventual rate cuts likely to unfold in late 2025 into 2026.

That's TradingNEWS