Gold has experienced a significant drop of over 3.0% as it heads toward $3,231 during the European trading session. The decline follows a major announcement from the United States and China, where both countries agreed to temporarily lower tariffs, marking a positive shift in trade relations. Under the agreement, China will reduce tariffs on U.S. goods from 125% to 10%, while the U.S. will lower tariffs on Chinese products from 145% to 30%, effective for the next 90 days.
The trade deal sparked a risk-on sentiment in the financial markets, with investors fleeing from safe-haven assets like gold and instead flocking to equities. U.S. President Donald Trump had already hinted at productive talks earlier in the week, encouraging investors to “buy stocks now” through his Truth Social Network. As a result, gold prices have dropped more than 8% from their all-time high of $3,500, reached on April 21.
Market Impact and Correlations
The U.S.-China tariff reduction deal has caused ripples throughout the global markets, with U.S. Treasury yields rising sharply. The U.S. 10-year yield reached 4.43%, a level not seen since early April, as investors anticipate a potential surge in inflation due to increased demand driven by the easing of trade tensions.
In the commodity sector, oil prices surged more than 2%, reaching $62.50, fueled by expectations of rising demand as trade disputes between the U.S. and China ease. Equities are also benefiting from the news, with Chinese stocks rallying over 1%, and European stock indices posting more modest gains. U.S. stock futures are outperforming, up between 2.50% and 3%.
U.S. Treasury Secretary Scott Bessent further fueled optimism, stating that both the U.S. and China do not wish to decouple their economies. He also mentioned the possibility of a purchasing agreement between the two nations, which further bolstered market sentiment.
Technical Analysis: Further Downside for Gold?
Looking at the technical outlook for gold, the pressure remains on the downside as safe-haven demand continues to evaporate. The price has already breached significant support levels and could face a second wave of selling once the U.S. trading session opens. If gold falls below $3,200, attention will shift to the S2 support level and the crucial technical pivot at $3,245. Should this support break, the price could drop significantly lower, with targets near $3,167. Such a move would erase most of the gains made in April and May.
However, for those looking to buy the dip, gold’s recovery prospects will depend on reclaiming several resistance levels. The first level to watch for a potential rebound is the daily S1 support, now turned resistance, at $3,284. Above that, the daily pivot at $3,315 comes into focus, followed by the R1 resistance around $3,356. A more sustained recovery would require breaking the R2 resistance at $3,388, potentially paving the way for a retest of gold’s all-time high of $3,500.
In summary, gold’s ability to recover from its current decline hinges on the broader market’s reaction to further developments in U.S.-China trade relations and upcoming economic data, particularly the U.S. inflation reports.
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