Gold prices (XAU/USD) exhibited heightened volatility throughout the week, driven by escalating geopolitical tensions, shifting U.S. fiscal dynamics, and mixed economic data, an analyst says.

Senior Analyst at Dupoin Futures Indonesia, Andy Nugraha, highlighted that gold prices spiked sharply earlier in the week following a controversial tax cut proposal by former U.S. President Donald Trump. The plan is expected to add an estimated US$3.8 trillion to the U.S. national debt over the next decade, raising concerns about fiscal sustainability.

The market reacted swiftly after rating agency Moody’s downgraded the U.S. government's credit rating, citing increased fiscal risks. This triggered a surge in demand for safe-haven assets, with gold benefiting directly from the renewed investor caution.

“Gold is reacting not only to geopolitical flashpoints but also to fiscal signals that threaten long-term confidence in U.S. financial management,” Andy told Indonesia Business Post, on Friday, May 23, 2025.

Tensions in the Middle East and unresolved trade frictions between the U.S. and China further supported gold’s appeal as a defensive asset. However, optimism returned temporarily after May’s U.S. Purchasing Managers' Index (PMI) for both manufacturing and services exceeded market expectations, strengthening the dollar and dampening gold’s upward momentum.

According to Andy, technical indicators such as candlestick patterns and moving averages suggest a weakening of the previous bearish trend. “Despite intermittent corrections, selling pressure hasn’t been strong enough to push prices significantly lower, signaling a cautious market stance,” he noted.

Looking ahead, gold could continue to retreat to around US$3,070 if risk-on sentiment gains traction and the U.S. dollar strengthens further, particularly if upcoming U.S. economic data point to continued recovery, thereby postponing any potential Federal Reserve rate cuts.

However, a rebound remains possible if gold breaks above key resistance at US$3,405. In that case, prices could climb to US$3,500, especially if geopolitical risks escalate or the dollar weakens significantly. The direction of fiscal policy following the tax reform bill’s enactment will also be closely monitored for its potential impact on perceptions of U.S. financial stability.

Despite short-term bearish pressure, Andy remains optimistic about gold’s medium-term outlook, underpinned by strong investor demand and persistent global uncertainties.

He advised traders to watch for reversal or breakout signals that could serve as key catalysts for the next price move.

“Gold remains a strategic hedge in portfolios, particularly as we head into a more uncertain fiscal and geopolitical landscape,” he said.