Dollar strengthens, causing gold prices to drop roughly 3% due to US-China tariff agreement.
Gold Prices Tumble Based on U.S.-China Trade Agreement
Gold prices took a hit on Monday, diving 3% to their lowest level in over a week, following the U.S. and China's announcement of a deal to lower tariffs. This strengthened the U.S dollar and diminished gold's allure as a safe-haven asset.
UBS analyst Giovanni Staunovo shed light on the situation, explaining that the temporary ease in trade tensions, with a 90-day tariff reduction, has trimmed demand for assets such as gold. Despite this, Staunovo cautioned that price volatility is likely to linger.
By 08:12 GMT, spot gold had dropped 3% to $3,224.34 per ounce, marking the lowest figure since May 1. U.S. gold futures also lost 3.5% to $3,228.10.
"High tariffs continue to weigh on global growth," Staunovo added, hinting that central banks could potentially reduce interest rates further this year and capitalize on the current price decline to augment their gold reserves.
Gold Prices and Tariffs: The Tangled Tie
Recent trade pacts between the U.S. and China have been instrumental in driving gold prices down. On May 12, 2025, gold prices nose-dived nearly 3%, with spot gold plunging to around $3,235.75 per ounce and futures slipping more than $100 per ounce [2][3]. Fueled by the U.S.'s lowering of tariffs on most Chinese imports from 145% to 30%, and China reducing its tariffs on U.S. goods from 125% to 10% [2][3], investors gravitated towards riskier equities and bonds, leading to a considerable outflow from gold. This trend was further amplified by growing optimism that a protracted trade war could be evaded [2][3].
Gold's Future: A Matter of Risk and Reward
While the immediate outlook for gold demand seems restrained as the market's risk appetite broadens and optimism about a U.S.-China trade settlement intensifies, analysts assert that any setbacks to this optimism, such as intensified trade tensions, could swiftly reverse this trend and re-ignite investor interest in gold [2][3].
Central banks, meanwhile, have shown a consistent appetite for gold over the past few years, driven by the need to diverse reserves away from the U.S. dollar and other fiat currencies. Although short-term price volatility may sway the timing of purchases, the broader trend among central banks to expand gold holdings is likely to persist [1]. This is especially true in an environment where geopolitical and economic risks remain heightened [1].
| Event | Gold Price Impact (May 2025) | Market Sentiment ||----------------------|------------------------------|--------------------------------|| U.S.-China Tariff Reduction | -2.7% to -3% (spot/futures) | Shift from safe-haven to risk-on || 90-Day Tariff Truce | Gold at ~$3,235.75/oz | Optimism on trade, equities rally || Hedge Fund Activity | Bullish wagers lowest in 1yr | Gold demand from funds wanes |
In conclusion, the gold market reacts sensitively to shifts in geopolitical and economic sentiments. Central bank demand, however, is expected to remain resilient as part of broader reserve diversification strategies [1][2][3].
In response to the U.S.-China tariff reduction, gold prices witnessed a decline, with spot gold dropping by approximately 3% to around $3,235.75 per ounce [2][3]. As a result, investors moved away from gold and towards riskier equities and bonds, causing a significant outflow from the gold market [2][3]. The finance industry and business community closely monitor these developments, as they can significantly impact the gold market. Meanwhile, central banks, due to their need for diversifying their reserves, are likely to maintain their demand for gold, especially in an environment where geopolitical and economic risks remain high [1].
