Gold Holds Firm Amid Fiscal Fears and Dollar Weakness

Gold prices remained elevated over the past week, trading just below their record high of $3,500/oz seen in April, with recent action hovering around $3,400 now acting as a key resistance level. A complex combination of factors continues to support the metal’s strength. Despite real US interest rates sitting above 2%, gold has defied traditional inverse correlations, buoyed instead by persistent fiscal concerns, strong central bank demand, and shifting investor risk sentiment.

Ongoing economic and trade policy uncertainty has driven capital away from US assets, weakening the dollar and widening US Treasury yields relative to other sovereign bonds, notably German Bunds. These developments, alongside increased Treasury swap spreads, underscore deepening investor concern about US debt sustainability and the growing price sensitivity of Treasury demand particularly among private foreign investors. Investors increasingly view gold as a hedge against fiscal instability, not just inflation or interest rate policy.

Central banks, especially in emerging markets, have also sustained strong gold purchases, drawn by gold’s crisis resilience and diversification benefits. While geopolitical tension involving the US, Iran, and Israel offered additional haven appeal earlier in the week, some softening in haven bids was noted by week’s end. Nevertheless, expectations of US rate cuts later this year, combined with a structurally uncertain bond market, suggest continued support for bullion.

The prevailing macro environment a mix of fiscal fragility, shifting capital flows, and elevated central bank activity reinforces gold’s status as a strategic safe-haven, even amid profit-taking and temporary technical resistance at current price levels. 

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