Gold takes a dive as US-China trade deal dents safe-haven appeal
Sterling weakened against the US dollar in early European trading on Monday, slipping 0.9% to $1.3177, as the greenback surged on renewed optimism following weekend trade talks between Washington and Beijing.
The US dollar index (DX-Y.NYB), which measures the greenback against a basket of six currencies, was up 1% to $101.32. The gains were driven by a weekend announcement from the United States that it had reached a preliminary trade deal with China after high-level negotiations in Switzerland, easing investor concerns about a potential recession in the world's largest economy.
Both sides said on Monday they would suspend 24% of additional ad valorem tariffs on goods from the other country for an initial period of 90 days, in a joint statement following trade talks in Geneva over the weekend.
The dollar's advance was further buoyed by the Federal Reserve's recent "hawkish pause" in interest rate policy, which supported expectations of tighter monetary conditions ahead and pushed the greenback to a one-month high.
Read more: FTSE 100 LIVE: Stocks head higher as US and China agree temporary deal to cut tariffs
"I suspect that talk of the demise of the US dollar as a reserve currency is premature and that we'll see a more normal trading pattern resume once we have some clarity around global trade," Michael McCarthy, chief executive officer of online trading platform Moomoo Australia, told Reuters.
"US inflation data is obviously going to be very important, and for the Aussie we'll be looking at the unemployment data this week, but I think it's trade talks that are very likely to dominate market action," he added.
Despite its decline against the dollar, the pound edged higher versus the euro, rising 0.3% to €1.1857. The move was attributed to positive sentiment surrounding the recent US-UK trade discussions.
Last week, US president Donald Trump announced that while a 10% tariff would remain on most British imports, Washington would reduce higher levies on British cars, steel, and aluminium — a shift that traders saw as supportive of sterling.
Meanwhile, the euro remained under pressure amid mounting expectations of further interest rate cuts by the European Central Bank.
Gold prices fell on Monday as signs of easing trade tensions between the United States and China prompted investors to pivot away from safe-haven assets in favour of riskier bets.
Gold futures were down by 3.5% to $3,226.30 per ounce, while the spot gold price lost 2.8% to $3,234.59 per ounce.
The drop follows constructive trade discussions over the weekend that market participants interpreted as a potential turning point in strained relations between the world's two largest economies.
China's vice premier He Lifeng described the talks with US officials as 'an important first step' in stabilising bilateral trade relations. US Treasury secretary Scott Bessent echoed that sentiment, saying the two sides had made 'substantial progress.'
The more upbeat tone in trade diplomacy has eased fears over additional tariffs and contributed to the unwinding of positions in traditional safe-haven assets such as gold.
Nikos Tzabouras, senior market Analyst at Tradu.com, said: 'Gold dips amid risk-on mood sparked by the US-China trade agreement that dulls demand for safe havens. The substantial rollback in duties, coupled with growing optimism about further trade deals with other partners, opens the door for a deeper pullback in gold prices.
'However, the relief may prove short-lived. The agreement represents a temporary pause, not a comprehensive resolution, and negotiations for a broader deal are expected to be more complex. As a result, trade uncertainty is likely to persist, potentially underpinning continued interest in gold as a hedge against geopolitical and economic volatility.'
Gold, which historically benefits during periods of economic and political uncertainty, also tends to perform well in low-interest rate environments. However, shifting expectations for US monetary policy and reduced geopolitical tensions have weighed on the metal in recent sessions.
Read more: Bank of England's commitment to bring inflation down is 'unwavering', says Bailey
On Friday, Cleveland Federal Reserve president Beth Hammack said the central bank needed more time to assess the economic fallout from Trump's tariff measures before determining its policy response.
'In the near term, gold possibly [will] continue to decline as the dollar could appreciate and amid reducing geopolitical risk the haven demand too may drop hence, the yellow metal may decline to $3,200/oz in the near term,' Jigar Trivedi, senior commodity analyst at Reliance Securities, said.
Oil prices jumped on Monday after the US and China announced plans to ease some of their tariff measures, stoking optimism that the two largest crude consumers might be on the path to resolving their trade dispute.
Brent crude futures (BZ=F) were up 2.6%, to trade at $65.58 a barrel, while West Texas Intermediate futures (CL=F) climbed 2.7%, hitting $62.68 a barrel.
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The market responded positively to the news, with traders hopeful that a more stable trade relationship between the world's two largest economies would foster stronger industrial activity and increased consumer demand, particularly in China.
Despite the optimism surrounding the potential resolution of trade tensions, the rally in oil prices was tempered by concerns over the upcoming production increases announced by OPEC+. The cartel plans to raise oil output in May and June, a decision that adds to existing uncertainty around global demand.
'Optimism over constructive US-China talks supported sentiment, but limited details and OPEC's plan to raise output capped gains,' said Toshitaka Tazawa, an analyst at Fujitomi Securities.
Adding to the cautious sentiment, Goldman Sachs (GS) has revised its oil price forecasts downward, now expecting Brent crude to average $60 per barrel and WTI to average $56 per barrel for the remainder of 2025. The investment bank also anticipates prices to dip further in 2026, with Brent and WTI projected to average $56 and $52 per barrel, respectively.
In broader market movements, the FTSE 100 (^FTSE) was up 0.3% on Monday morning, trading at 8,579 points at the time of writing. For more details, check our live coverage here.Sign in to access your portfolio
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