Gold prices have been extremely volatile in the last month, largely supported by evolving trade movements and investor sentiment. The precious metal rallied to record highs with U.S.-China trade war tensions and has since deflated. Gold prices slipped more than 2% on Monday after China and the United States reached a truce in their trade war that could avert an increase in tariffs, which buoyed appetite for riskier assets and dented gold’s safe-haven appeal.
Spot gold fell 2.6% to $3,237.04 per ounce as of 11:32 a.m. ET (15:32 GMT). U.S. gold futures followed suit, dropping 3.1% to $3,241.70. The decline followed the announcement that U.S. tariffs on Chinese goods would be cut from 145% to 30%, the same level as before the trade war, and China would lower tariffs imposed on hundreds of billions of U.S. exports to 10% from 125%. The cuts are to remain in place for 90 days, pending further negotiation.
The change in the trade tone comes after a turbulent month for gold.Jitters about an escalating tariff war and broader economic fallout pushed spot gold to an all-time high of $3,500.05 last month. The rally was mainly supported by investors seeking a safe haven as they poured into bullion because of global instability and fears about the U.S. administration‘s trade position.
But risk appetite began to return to global markets, as there have been signs of a diplomatic breakthrough in recent weeks. Shares surged on Monday, and the dollar jumped to a one-month high, piling pressure on gold. A stronger dollar tends to make dollar-priced gold more expensive for overseas buyers, hurting demand.
“Gold’s knee-jerk move last month to White House headlines has made the precious metal ripe for a reversal if Trump can convince the market that he’s back-tracking,” said Adrian Ash, director of research at BullionVault. “With encouraging sentiment in the new mood music, upside potential for gold is likely to be realized only on corrections to such sentiment.”
The technical dynamics of the market have also improved due to the tariff deal. – According to Jim Wyckoff, a senior analyst at Kitco Metals, gold bulls have faded and forfeited their near-term technical advantage this week. “The next upside target is to break through $3,350. “Initial resistance is at $3,250, followed by $3,275,” he added.
More signals on which way gold prices may be headed next could come next week, when investors will be looking to a slew of important U.S. economic reports. The report on the Consumer Price Index (CPI) is scheduled for release Tuesday, with the Producer Price Index and retail sales figures on Thursday and Friday, respectively. These readings are likely to affect expectations for interest rate policy from the Federal Reserve.
Low rates are usually advantageous for gold, which does not pay interest. Despite a softer geopolitical backdrop, prices may find support if the Fed shows any signs of a dovish pivot.
In the overall precious metals market, other prices declined as well. Spot silver fell 0.4% to $32.56 an ounce, platinum retreated 1.6% to $978.80, and palladium dropped 2.7% to $949.43.
While Monday’s retreat of 6% from a 7-year high of $1,704.30 an ounce hit last week, there’s still a lot of uncertainty in the gold outlook, analysts warn. Then again, signs that trade talks are getting worse and a surprise in more inflationary data in the near future could put the safe-haven trading frenzy back in order. For now, the market appears to be taking a breather after weeks of intense volatility.