Gold prices sharply extended their losses on Monday, plunging to a new one-week low below the $3,250 mark, driven by optimistic news surrounding U.S.–China trade talks. This shift in market sentiment stemmed from the announcement of a significant trade agreement between the U.S. and China, which alleviated investor fears and diverted safe-haven flows away from the precious metal.
Progress in U.S.–China Trade Negotiations
A key factor contributing to gold’s sharp decline was the announcement of a new 90-day tariff pause between the U.S. and China. The two nations agreed to hold off on imposing additional tariffs, while also temporarily reducing existing ones. The agreement, heralded as a major breakthrough in trade discussions, sparked investor optimism, leading to lower demand for gold, which typically thrives during times of economic uncertainty.
The U.S. administration moved to ease tariffs by reducing President Trump’s reciprocal tariffs on Chinese goods from 25% to 10%, in addition to a 20% reduction on tariffs linked to fentanyl-related issues. This decision, confirmed in a joint statement following lengthy negotiations over the weekend, helped dampen fears of a full-scale trade war, signaling a shift towards diplomatic resolution.
Scott Bessent, U.S. Treasury Secretary, confirmed that both sides were committed to cooperation rather than “decoupling,” noting the establishment of “a good mechanism” to ease trade tensions. The agreement, though temporary, is seen as a step forward in stabilizing relations between the world’s two largest economies. Further negotiations on economic and trade matters are expected to continue in the coming months.
Impact on Safe-Haven Assets and Market Sentiment
As the trade conflict appeared to ease, investor sentiment shifted significantly. Gold futures saw a sharp decline of over $120 per ounce, reflecting the broader market’s shift away from safe-haven assets. This was compounded by a stronger U.S. dollar, which generally exerts downward pressure on gold prices due to their inverse relationship.
With the announcement of the U.S.-China deal, U.S. stock futures surged, adding to previous evening gains, further signaling optimism in the market. China’s Vice Premier He Lifeng confirmed that a joint declaration would be issued in Geneva, bolstering the market’s positive outlook and contributing to gold’s downward trajectory.
Broader Geopolitical Developments
Elsewhere, geopolitical events also weighed on gold’s price action. Russian President Vladimir Putin expressed a willingness to engage in unconditional negotiations with Ukrainian President Volodymyr Zelenskyy, signaling a potential thaw in tensions. Meanwhile, Hamas announced plans to release Edan Alexander, the last surviving American hostage, and indicated negotiations with the U.S. for a ceasefire and the resumption of humanitarian aid. These developments, though not directly related to the U.S.-China trade agreement, added to the sense of global stability, reducing the demand for safe-haven assets like gold.
Upcoming Economic Data and Fed’s Influence on Gold
Looking ahead, traders are gearing up for the release of U.S. inflation data, which could provide further insights into the health of the economy and influence market dynamics. Additionally, market participants are awaiting Fed Chair Jerome Powell’s speech on Thursday, hoping for hints about future interest rate cuts and the broader economic outlook. Any signals from the Federal Reserve regarding monetary policy could have a substantial impact on gold prices, particularly if inflation data shows signs of cooling.
Gold’s Technical Picture
Technically, gold’s price action suggests continued bearish pressure below the $3,250 level, which coincides with a critical confluence zone that includes the 100-period Exponential Moving Average (EMA) on the 4-hour chart and the 61.8% Fibonacci retracement from the recent rally. This level is likely to act as a resistance, with further downside pressure expected if prices fail to reclaim it.
Additional bearish indicators are visible on the hourly chart, signaling a possible further decline in the yellow metal. The monthly low, around the $3,200 per ounce level, is expected to serve as a key support area for bullish traders. If gold manages to break above the $3,500 psychological mark—its all-time high from April—bullish momentum could potentially return.
However, any recovery toward the $3,300 range now seems vulnerable to fresh selling pressure, particularly between the $3,317 and $3,318 zones, which align with peaks from the Asian trading session.
Conclusion: The Road Ahead for Gold
In summary, gold’s recent plunge is a direct result of the positive market reaction to the easing of U.S.-China trade tensions and the subsequent strengthening of risk appetite among investors. The precious metal now faces significant resistance around the $3,250 level, and its next move will largely depend on the continued geopolitical landscape, upcoming economic data, and any developments from the Federal Reserve.
