A significant driver behind gold’s rally is the persistent weakness in the U.S. dollar. The downgrade of the U.S. sovereign credit rating by Moody’s last Friday—from Aaa to Aa1—has amplified market fears about the nation's growing fiscal deficit and debt load. These concerns have prompted investors to seek refuge in safe-haven assets, pushing gold prices higher and maintaining bullish sentiment.

Federal Reserve officials have recently voiced caution over the U.S. economic outlook, partly due to uncertain trade policies under President Trump. While no immediate rate cuts have been confirmed, there is growing speculation about a more accommodative stance in 2025. Fed Governor Raphael Bostic hinted at a single rate cut next year, while others, like Beth Hammack of the Cleveland Fed, warned of increasing stagflation risks due to restrictive fiscal policies.

From a technical standpoint, gold’s decisive breakout above the $3,250–$3,260 resistance area—aligned with the 200-period Simple Moving Average (SMA) on the 4-hour chart—has strengthened the bullish case. The move beyond $3,300 is further supported by favorable oscillators on both hourly and daily charts. If momentum continues, XAU/USD could soon test the next resistance zone near $3,360–$3,365, with the potential to challenge the $3,400 level.

Interestingly, recent momentum in gold hasn’t been driven by Western markets or ETF inflows. Instead, strong demand from China is taking center stage. According to Goldman Sachs, trading activity during Shanghai’s night session has surged, triggering a ripple effect in COMEX. Open interest on the Shanghai Futures Exchange has hit record highs, reinforcing gold’s rally alongside silver, which also saw notable gains.

In addition to fiscal concerns, unresolved geopolitical tensions continue to fuel demand for gold. The ongoing conflict between Russia and Ukraine, as well as rising instability in the Middle East, have increased investor appetite for safe assets. Meanwhile, central banks around the world, including the People’s Bank of China and the Reserve Bank of Australia, have begun to lower interest rates—adding another layer of support for bullion prices.

With gold now firmly above $3,300, the outlook remains positive as long as support holds above $3,285. Any dips toward $3,260–$3,250 could attract fresh buying interest. However, a sustained drop below that zone might trigger technical selling, exposing the $3,200 and $3,120 levels. For now, the combination of dovish monetary expectations, a weaker dollar, geopolitical uncertainty, and robust Chinese demand appears to set the stage for further gold appreciation in the near term.