On Monday, as reported by Reuters, gold prices fell more than 1% while the trade tensions between the US and China subsided. The growing strength of the dollar added pressure on bullion as the cost was higher for the buyers dealing in a foreign currency. Early trading saw spot gold drop 1.4% to $3,272.89 per ounce and U.S. gold futures drop 0.4% to $3,283.70.
This decline in the price of gold, coupled with a rising dollar, has placed gold on a declining path after hitting record levels mere days ago. Investors have shifted attention away from such traditional hedges as gold, with optimism regarding global economic stability bearing down on market sentiment.
Easing Trade Tensions Undermine Gold’s Safe-Haven Appeal
In the face of growing worries about the recession, the Trump administration recently suggested that it would be willing to ease trade tensions with China. While President Trump asserted that tariff talks were initiated, Chinese officials quickly denied the claim. China did, however, provide a temporary tax break on certain U.S. imports, suggesting a possible thawing of relations.
During the IMF and World Bank Spring Meetings, many observers remarked that the United States’ demands on trading partners remained contradictory. Meanwhile, gold prices rose, aided by continued economic uncertainty and low interest rates.
The price of gold rose to a record-breaking $3,500.05 per ounce last week. This move was driven largely by purchases from central banks and renewed investor interest. However, its status as a traditional safe-haven asset has weakened considerably amid easing trade tensions between the United States and China. UBS analyst Giovanni Staunovo said in a statement that,
“Market sees trade tensions de-escalating and is less concerned about the Fed independence, reducing the demand for safe-haven assets for now. With the Fed still expected to cut interest rates later this year, we still look for gold to retest the $3,500/oz mark.”
On the 22nd of April, the prices of gold started decreasing just days after hitting a new historic level of $3,500.05. The decline was as a result of the U.S. dollar gaining 0.3% against significant world currencies as investors turned towards riskier assets while away from the traditional safe havens such as gold.
Stronger Dollar Adds to Downward Pressure
The US dollar rose 0.2% versus a basket of key currencies, raising the price of gold for international buyers. According to CNBC, the dollar index rose 0.3% on Monday, reaching its highest level in several weeks, raising the price of gold for individuals who own foreign currencies. Tim Waterer, Chief Market Analyst at KCM Trade, noted,
“It’s probably fair to say that financial markets and risk-assets in particular are feeling slightly better about the tariff picture now compared to the frantic first week in April.”
The gold drop was also reflected across other major precious metals. The silver dropped 1.2%, closing at $32.70 an ounce. Platinum dropped 0.6%, closing at $965.70, and palladium dropped 1% to $939.00.
About The Author
