Gold (XAU/USD) has staged an impressive positive performance of 19% in the first quarter of 2025, which even outperformed other cross asset classes, such as the US S&P 500 (-4.6%), US Dollar Index (-4%), and Bitcoin/USD (-11.7%) over the same period.
- Gold (XAU/USD) rose 19% in Q1 2025, outperforming major asset classes like the S&P 500, US Dollar Index, and Bitcoin.
- After hitting an all-time high of US$3,500 on 22 April, Gold corrected 10% to US$3,120 by 15 May, driven by a stronger US dollar and improved risk sentiment.
- Weak US consumer sentiment and rising inflation expectations suggest a lingering stagflation threat, supporting potential demand for Gold as a hedge.
- The 10% decline found support at the 50-day moving average, with bullish elements emerging, including a higher low and RSI stabilization.
- A break above US$3,305 could trigger a bullish reversal toward US$3,435–US$3,500, while a drop below US$3,056 may expose deeper support levels near US$2,833.
The yellow metal extended its bullish impulsive up move sequence in April to record a monthly gain of 5.3% and hit a fresh all-time intraday high of US$3,500 on 22 April 2025.
Thereafter, Gold (XAU/USD) staged a 10% corrective decline to print an intraday low of US$3,120 on 15 May 2025, within its ongoing major uptrend phase. This was triggered by a revival of the US dollar and risk-on sentiment due to optimism arising from the de-escalation of US-China trade tensions.
Interestingly, there are several factors at play now that suggest Gold (XAU/USD)’s recent three weeks of corrective decline have hit an inflection zone to kickstart a potential medium-term bullish reversal process.
Stagflation Risk Is Still Lingering Around
Fig 1: University of Michigan Consumer Sentiment & Inflation Expectations as of May 2025 (Source: TradingView)
Consumer sentiment survey results are considered leading “soft” economic data, which may translate into similar outcomes for “hard” data such as retail sales in the coming months.
Given that retail sales in the US play a pivotal role in shaping the trend of services activities, which contribute close to three-quarters of US economic growth, such “soft” data on consumer sentiment is likely to be scrutinized by market participants, in turn, triggering a feedback loop back into the financial markets.
Despite the recent conclusion of the 90-day pause on reduced tariff rates between the US and China that was agreed on 11 May, the latest preliminary University of Michigan Consumer Sentiment survey results for May, conducted between 22 April to 13 May dropped sharply to 50.8 down from 52.2 in April and well below market expectations of 53.4. This marks the fifth consecutive monthly decline, the lowest reading since June 2022, and the second lowest on record (see Fig 1).
In addition, the subcomponents of the University of Michigan survey also cover inflationary expectations (future inflationary trends in the US). The one-year head inflation expectations in the US accelerated for the sixth consecutive month to 7.3% in May 2025, reaching a new high since November 1981.
Meanwhile, the five-year inflation expectations quickened for the fifth month to 4.6% in May, its steepest reading since March 1991.
Overall, these observations point to a persistent risk of stagflation in the US, which could drive increased hedging demand for Gold (XAU/USD).
Let’s review Gold (XAU/USD) to decipher its medium-term directional bias from a technical analysis perspective.
Technical Chart of Gold -10% Corrective Decline Managed to Stall at the 50-day MA
Fig 2: Gold (XAU/USD) medium-term & major trends as of 20 May 2025 (Source: TradingView)
Interestingly, in the past week, several technical conditions have emerged to suggest that the bearish momentum of the 10% corrective decline from 22 April to 15 May has eased, where the next price movement of Gold (XAU/USD) may stage a bullish reversal.
Firstly, the corrective decline has managed to stall right at the rising 50-day moving average, acting as an intermediate support at around US$3,130 on 15 May, thereafter price actions staged a rebound of 3.8% before a retest on the 50-day moving average on Friday, 16 May, and formed a “higher low”.
Secondly, the daily RSI momentum indicator has managed to find “support” at the 44 level on 14 May, where two prior similar observations occurred previously on 30 December 2024, and 8 April 2025 led to significant bullish reversal in the price actions of Gold (XAU/USD) (see Fig 2).
Watch the US$3,056 key medium-term pivotal support, and a clearance above US$3,305 (also the 20-day moving average) increases the impetus of a potential bullish reversal to see the next medium-term resistances coming in at US$3,435 and US$3,500 in the first step.
However, failure to hold at US$3,056 invalidates the bullish reversal scenario for an extension of the corrective decline sequence to expose the next medium-term support at US$2,955, and a break below it may see a further drop towards the US$2,833 long-term pivotal support area (also the key 200-day moving average).