Gold prices are facing a rather uncomfortable slide in Asian trading this Monday, extending losses from last week. With geopolitical tensions between the U.S. and China showing signs of easing, the precious metal’s role as a “safe-haven” asset is losing its luster. Traders who had rushed into gold during periods of heightened uncertainty are now trimming their positions, leaving the yellow metal on a downhill trajectory.
As of 00:44 ET (04:44 GMT), spot gold dropped 1.3%, settling at $4,060.80 per ounce, while U.S. Gold Futures fell 1.6% to $4,072.60. After nine consecutive weeks of gains, gold appears to have caught its breath, but not in a good way. In fact, the metal’s recent decline marks a sharp reversal from last week’s stellar highs above $4,300 per ounce. This rally was largely driven by geopolitical fears and hopes of easier monetary policy, but it seems traders have shifted gears, deciding it’s time to pocket some profits.
The End of Trade Wars and the Return of Risk Appetite
A key factor behind the dip in gold prices is the thawing of U.S.-China trade tensions. Over the weekend, negotiators from both countries reached a preliminary framework for resolving trade issues, effectively taking the “trade war” off the table, at least for now. With U.S. President Donald Trump and Chinese President Xi Jinping set to meet later this week in South Korea, the stage seems set for further talks to extend the current trade truce—and perhaps even set the foundation for a more comprehensive deal.
Scott Bessent, a U.S. Treasury official, weighed in on the developments, noting that “the threat of the 100% tariff has gone away, as has the threat of the Chinese initiating a worldwide export control regime.” As trade fears subside, investors are becoming more comfortable with riskier assets, shifting away from the safe-haven appeal of gold.
In simple terms: When the trade tensions between the two economic giants start to look more like a distant memory, there’s less urgency to park funds in gold, which traditionally thrives during times of uncertainty. Instead, traders are rediscovering their appetite for riskier investments, which is pressuring gold’s price downward.
Federal Reserve Rate Cut: The Silver Lining for Gold?
While gold’s losses are currently dominating the headlines, there’s a twist in the tale that could prevent prices from falling further. Despite the optimism surrounding the U.S.-China trade negotiations, many investors are still betting on the Federal Reserve cutting interest rates at its meeting scheduled for October 29.
Last week’s surprisingly soft U.S. consumer price index (CPI) report has only fueled these expectations, with analysts now predicting a 25 basis point rate cut. Historically, lower interest rates tend to provide a boost for gold, which doesn’t pay interest or dividends. When rates are low, the opportunity cost of holding non-yielding assets like gold decreases, making it a more attractive investment. Additionally, a rate cut puts downward pressure on the U.S. dollar, further supporting the precious metal as it becomes cheaper for foreign buyers.
But here’s the catch: While the market anticipates a Fed rate cut, there’s a possibility that investors are already pricing in this move. If the central bank delivers as expected, gold’s reaction might be more muted than it would have been a few weeks ago. Still, for now, the promise of easier monetary policy is helping to cushion gold’s downward slide, offering a lifeline for those who still believe in its long-term appeal.
The Broader Precious Metals Picture: Mixed Sentiment
It’s not just gold that’s feeling the pressure. Other precious metals are also on the decline, albeit to a lesser extent. Silver Futures took a 1.4% hit, dropping to $47.91 per ounce, while Platinum Futures slid 0.9% to $1,587.10 per ounce. The broader market sentiment, driven by optimism over the U.S.-China trade talks, is definitely weighing on precious metals.
However, there is a silver lining (no pun intended) in the commodity markets. Copper, often seen as a bellwether for global economic health, surged to new heights on Monday, hitting a record price of $11,078 per ton on the London Metal Exchange. U.S. Copper Futures also rose by 1.4%, reaching $5.19 per pound. This rally is largely driven by the ongoing shutdown of Freeport’s Grasberg mine in Indonesia, which has created tight supply conditions. Additionally, the expectations of a trade truce between the U.S. and China have fueled optimism, further boosting demand for copper, a key industrial metal.
In conclusion, while gold faces a setback thanks to fading trade war fears and renewed risk appetite, the potential for a rate cut by the Federal Reserve may still provide some support for the precious metal. Traders will likely be closely watching upcoming developments, including the Fed’s decision, for further direction. Until then, gold might have to live with the reality of a more risk-on market, at least for the time being. 1
