Gold prices fell on Wednesday as easing trade tensions between the U.S. and China reduced the demand for gold as a safe-haven asset. The precious metal lost 0.7%, settling at $3,226.11 per ounce as of 0430 GMT, while U.S. gold futures dipped 0.6% to $3,229.50. Analysts pointed to the de-escalation in trade conflicts as a key factor behind the decline.
Easing US-China Trade Relations Weaken Gold’s Appeal
Positive developments in U.S.-China trade policy have diminished the immediate appeal of gold, which is traditionally viewed as a hedge against economic uncertainty. Capital.com’s market analyst, Kyle Rodda, stated that the progress in trade talks is likely to push gold prices lower in the short term. “If we continue to see positive developments in trade negotiations and deals between the U.S. and its trading partners, gold could pull back further,” Rodda noted, adding that $3,200 is a critical level of support for the metal.
As part of the ongoing trade negotiations, the U.S. has decided to reduce the “de minimis” tariff for low-value shipments from China to 30%, a move that is expected to ease trade tensions between the two largest economies. U.S. President Donald Trump also stated that he does not foresee tariffs on Chinese imports returning to 145%, signaling optimism that a trade deal could be reached soon.
Inflation Data and the Fed’s Policy Path
Markets are now closely watching upcoming inflation data to gauge the Federal Reserve’s next moves regarding interest rates. The U.S. Department of Labor reported that the consumer price index (CPI) increased by 0.2% in April, slightly below the expected 0.3% rise. Economists had anticipated a slight increase following the 0.1% decline in March.
Traders are also awaiting the release of the Producer Price Index (PPI) data on Thursday, which is expected to provide further insight into inflation trends and the Fed‘s potential rate-cut trajectory. Currently, the market is expecting the Fed to cut rates by 53 basis points this year, starting in September.
Gold, which tends to thrive in low-interest rate environments, could face pressure if inflation data remains subdued, as it may prompt the Fed to tighten its monetary policy. Trump has also called for the Fed to lower rates, citing falling prices for gas, groceries, and other goods as reasons to ease monetary policy further.
Other Precious Metals
Other precious metals also faced downward pressure on Wednesday. Spot silver dropped 0.8% to $32.61 per ounce, while platinum remained steady at $988.65. Palladium, however, lost 0.9%, falling to $948.60.
As the global economic outlook stabilizes with easing trade tensions, investors may shift their attention away from precious metals like gold, reducing demand for them in the near term. However, any unexpected developments in global politics or further economic uncertainties could reignite interest in gold as a safe-haven investment.
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