Gold is retreating on Thursday despite persistent US Dollar (USD) weakness as traders continue to favour risk assets.

With XAU/USD trading near $3,330 in the American session at the time of writing, the yellow metal continues to display signs of resiliency despite a minor pullback.

The risk-on tone being adopted by global markets has continued to ripple through markets as US equity indices continue their ascent to fresh, record highs. This has limited Gold's ability to extend gains, despite a weaker Greenback.

With the timing of Fed rate cuts still in question, recent data and US President Donald Trump's scrutiny against Fed Chair Powell has contributed to the US Dollar's declines..

Fed Chair Powell concluded on Wednesday the two-day semiannual testimony to Congress, during which he was questioned on the Monetary Policy Report. Despite global central banks lowering interest rates amid slowing inflation, the Fed has kept rates unchanged at the 4.25%-4.50% range throughout this year. However, with inflation edging closer to the Fed's 2% objective target, the timing of the next rate cut has become a contentious issue.

Recent economic data, including Tuesday's US Conference Board Consumer Confidence and Wednesday's US New Home Sales figures, suggest that the US economy is beginning to take strain. However, a major concern for Powell has been the risks that tariffs may pose to inflation, which he believes will only become apparent at a later stage.

The CME FedWatch Tool reflects expectations for the Fed to adjust rates at upcoming meetings. A rate cut has been and continues to be priced in for September, with a 68% probability of a 25-basis-point (bps) cut and a 21.3% probability of a larger 50 bps cut. So far, this has restricted Gold's ability to reclaim the record high of $3,500 tested in April

Meanwhile, US President Trump addressed the media at the NATO summit on Wednesday, discussing various topics, including the US economy. Trump once again condemned Fed Powell for his reluctance to cut rates. One of his quotes included that "He is going out, fortunately. I think he is terrible.

In terms of risk sentiment, geopolitical risk has abated for now, with the Israel-Iran ceasefire holding for a third consecutive day. While the situation remains fragile, the lack of new escalations has drawn safe-haven flows away from Gold, placing more emphasis on macroeconomic and policy factors for direction.

Looking ahead, the release of the monthly US Personal Consumption Expenditures (PCE) data on Friday, the Fed's preferred inflation gauge, will be critical. A soft print could revive expectations for a near-term rate cut and offer a fresh tailwind for Gold.

Source: Fxstreet