Gold is swinging between extremes as spring draws to a close. The week ending May 16 was the worst for the precious metal due to optimism that, following a trade truce between Washington and Beijing, the White House's protectionist policies had peaked. In contrast, the five-day stretch leading up to May 23 risks becoming gold's best week in at least a month, fueled by mounting U.S. fiscal concerns. Investors are flocking to safe-haven assets—and gold is excelling in that role.

In the U.S., the amount of outstanding Treasury securities has surged from $4.5 trillion in 2007 to nearly $30 trillion today. At the same time, the national debt-to-GDP ratio has jumped from 35% to 100%. Moody's forecasts that this figure could reach 134% by 2035 unless Washington takes extraordinary measures to curb its growth. Judging by the tax bill passed in the House of Representatives, Donald Trump does not appear inclined to take any such action.

According to the Congressional Budget Office, the measures outlined in the bill would expand the deficit by an additional $2.7 trillion. Financing such a deficit would require large-scale Treasury bond issuance, and investors would demand higher yields. Under normal circumstances, rising bond yields would put pressure on XAU/USD—but we are currently witnessing a broader sell-off of U.S. assets, including the dollar, allowing gold to shine.

Gold vs. U.S. Treasury Yield Dynamics

Geopolitical tensions are also supporting gold purchases. Behind the scenes at the G7 meeting of finance ministers and central bank governors, U.S. Treasury Secretary Scott Bessent told his European counterparts that the U.S. is prepared to tighten sanctions against Russia for its refusal to end the armed conflict in Ukraine. Meanwhile, U.S. intelligence reports suggest that Israel is preparing strikes on Iran's nuclear facilities.

Adding to the bullish backdrop is surging demand for physical gold from China. In April, Chinese imports jumped to 127.5 tons, marking an 11-month high. This reinforces the notion that gold's rebound from the lower bound of its medium-term consolidation range between $3100–$3400 per ounce is not just technical—but fundamental.

China's Gold Import Dynamics

Moreover, the Fed's pause in monetary policy easing may soon come to an end. According to FOMC official Christopher Waller, if tariffs are stabilized near 10% during the current 90-day reprieve, the Fed is likely to cut the federal funds rate in the second half of the year. Historically, monetary easing weakens the U.S. dollar and supports gains in XAU/USD. The closer this scenario becomes, the more favorable the outlook for gold.

Technical Picture

On the daily chart, gold has broken above its fair value level from below—indicating strong buying interest. A sustained move above $3308 per ounce, followed by a successful test of the upper boundary of the previous bearish channel, constitutes a bullish signal—suggesting that it may be time to re-enter long positions.