Gold prices hit a one-week high on Thursday following weak U.S. inflation numbers that boosted hopes that the Federal Reserve will reduce interest rates in the later part of the year. The XAU/USD is trading at $3386.07, a gain of $30.82 or +0.92%, close to the significant resistance at $3403.63. A break above here would be an extension of the trend and put the May 6 high at $3435.06 within sight.

This rally was partly driven by the most recent Consumer Price Index (CPI) report, which showed U.S. inflation rose just 0.1% in May, below the 0.2% forecast. CPI was up 2.5% year-over-year, and that caused the U.S. dollar index (DXY) to drop 0.3% to a two-month low. While the dollar declined, foreign investors found gold more attractive.

Betting on Rate Cut Pushes Gold Up

The gold prices forecast has become more bullish because the market now anticipates at least 50 basis points of rate cuts in 2025. Fed funds futures have a 68% chance of a rate cut in September. Declining Treasury yields also underpin gold's rally, with the 10-year at 4.387% and the 2-year at 3.926%. These decreases reduce the price of not earning interest on non-yielding gold and tend to induce buying during rate cut cycles.

The rally in gold is also fueled by growing speculation that the Fed will become more aggressive if disinflation continues or labor measures begin to weaken. If disinflation does continue, the Fed would have to start easing ahead of time, analysts at Goldman Sachs point out.

Safe-Haven Demand Due to Geopolitical Tensions

Geopolitical risk is providing gold with another tailwind. President Donald Trump affirmed that the U.S. is relocating personnel in the Middle East as tensions with Iran remain high. Trump also affirmed that the U.S. is dedicated to keeping Iran from obtaining nuclear weapons.

In the meantime, ties between the U.S. and China continued, such as consent on a new trade agreement for rare earth resources and easing restrictions on Chinese students in the US. While this temporarily steadied markets, the overall environment is still fragile, sustaining high demand for traditional safe-haven assets like gold.

PPI Numbers Could Determine What Comes Next

Markets now look to the next U.S. Producer Price Index (PPI) announcement. An additional inflation downside shock would be conducive to Fed rate cut expectations and push gold beyond the $3400 resistance level.

If XAU/USD breaks above $3403.63, technical momentum can take it to the May 6 high at $3435.06. Downside support is first at $3310.48, with stronger support near the 50-day moving average at $3279.30.

Gold Prices Forecast Is Optimistic

Overall, the gold prices forecast is still bullish with falling yields, a weaker dollar, and rising geopolitical risk. Absent a shift in tone based on new economic data or Federal Reserve commentary, the tone for gold is to rise. With a number of tailwinds—softer inflation, to name a few, and global uncertainty—gold is growing well-positioned as a resilient asset in the latter half of 2025. Investors must remain vigilant for crucial data points and levels of resistance as XAU/USD approaches a key breakout area.