Gold fell as demand for haven assets tanked after the US and China agreed to lower tariffs on each other's products for 90 days, signaling a major breakthrough in trade negotiations that were flagged last week.
Bullion's losses accelerated on Monday after the announcement, with prices falling as much as 3.2% to around $3,220 an ounce. The dollar extended gains — making gold more expensive for most buyers — following a joint statement from both nations that said the combined 145% US levies on most Chinese imports will be reduced to 30%, while the 125% Chinese duties on US goods will drop to 10%.
The announcement represents a step toward de-escalating a tariff war that has led to an immediate slump in trade across the Pacific Ocean. The two countries had earlier reported “substantial progress” in their talks, which buoyed markets and helped stocks recoup most of their losses since President Donald Trump's seismic “Liberation Day” announcement of tariffs on April 2.
While bullion could test the lower end of of its current $3,200 an ounce to $3,400 range if there is continued progress in US-China trade talks, “dips to and through $3,200 in gold should be very well supported for an eventual move to fresh record highs,” said Robert Rennie, head of commodity and carbon research at Westpac Banking Corp. in Sydney.
Ahead of Monday's selloff, investors had been scaling back exposure to gold. Hedge funds slashed their bullish wagers on the precious metal to the lowest in more than a year on growing optimism surrounding potential progress in US trade negotiations, according to the latest Commodity Futures Trading Commission data.
Still, concerns about the economic impact of the tariff war unleashed by the new US administration has helped drive gold more than 20% higher this year, with prices hitting a record above $3,500 an ounce last month before losing some ground in recent weeks. The precious metal has also seen support from strong central bank buying and speculative Chinese retail activity.
Meanwhile, haven demand was also impacted after a ceasefire between India and Pakistan appeared to be holding on Sunday after four days of clashes that brought the two nuclear-armed nations close to a full-blown war. Investors will also be watching as Donald Trump's effort to secure peace in Ukraine reaches a decisive moment, with Volodymyr Zelenskiy challenging Vladimir Putin to engage in talks this week.
Spot gold was 2.8% lower at $3,232.13 an ounce as of 8:33 a.m. in London. The Bloomberg Dollar Spot Index surged 0.7%. Silver, palladium and platinum fell.
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