Gold faces potential further drops as US-China strike deal

Gold prices seem vulnerable to further declines after the yellow metal fell to a one and a half week low on Monday. 

“The latest optimism over the US-China trade deal remains supportive of the upbeat market mood and continues to weigh heavily on the traditional safe-haven commodity,” Haresh Menghani, editor at FXStreet, said in a report. 

Easing US recession fears and the Federal Reserve’s hawkish pause have boosted the US Dollar (USD) to its highest point since April 10 as well. 

A stronger dollar makes commodities priced in the greenback more expensive for overseas investors, thereby limiting demand. 

At the time of writing, the most-active gold contract on COMEX was at $3,230.26 per ounce, down 3.4% from the previous close. 

Among other precious metals, the most-active silver contract on COMEX was also down 1.7% at $32.358 per ounce. 

US-China trade talks

High-stakes trade talks between the US and China concluded positively in Switzerland on Sunday, with US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer announcing that a trade deal had been reached.

China’s Vice Premier He Lifeng stated that significant progress was made during the meeting, with consensus reached on critical topics. 

Following discussions with Chinese officials in Geneva, US Treasury Secretary Scott Bessent announced to reporters that Washington and Beijing have agreed to a 90-day suspension of actions. 

As part of the agreement, reciprocal tariffs are expected to decrease by 115%.

This development spurred a global risk-on trading environment and negatively impacted the price of safe-haven assets like gold, Menghani said.

Recent reciprocal tariff impositions between the US and China last month had initiated a trade war, raising concerns about a potential global recession.

Geopolitical tensions ease

Russian President Vladimir Putin has agreed to direct talks with Ukrainian President Volodymyr Zelenskyy, proposing that these discussions commence on Thursday, May 15, without any prior conditions or delays.

Meanwhile, Hamas announced the upcoming release of Edan Alexander, the last living American hostage in Gaza. 

The organisation also confirmed its intention to hold direct discussions with the US to facilitate a ceasefire agreement and the resumption of aid deliveries.

“A ceasefire between India and Pakistan has also buoyed risk sentiment and weighed on gold prices,” analysts at ING Group said. 

Still, gold is up by more than 20% so far this year, with Trump’s unpredictable trade policy the key driver for gold so far in 2025.

This week, traders will be focused on upcoming US inflation data and a Thursday appearance by Fed Chair Jerome Powell.

His remarks will be closely watched for signals regarding the future direction of interest rate cuts and potential market catalysts.

Gold may fall below $3,200

A break and confirmation below the $3,295-3,290 support zone (100-period EMA on the 4-hour chart and 61.8% Fibonacci retracement of the recent uptrend from the monthly low) could signal a bearish move for gold traders, according to FXStreet.

“Moreover, oscillators on hourly charts have been gaining negative traction and support prospects for a further intraday depreciating move for the gold price,” Menghani said. 

If gold prices break below the Asian session low around $3,253-3,252, they would strengthen the bearish outlook and could lead to the monthly low near $3,200, he added.

The latter should act as a pivotal point, which, if broken decisively, should pave the way for the resumption of the prior retracement slide from the $3,500 psychological mark, or the all-time peak touched in April.

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