The price of gold has suffered a sharp drop to the start of the trading week, with markets cheered by news of a tariff agreement between the US and China.
Following last week's agreement between the US and UK, US Treasury Secretary Scott Bessent has confirmed that tariffs between the US and China will be slashed by a significant 110% for a period of 90 days. The agreement has caused stock markets to climb and the US dollar index has jumped 1.19% so far today.
Gold has fallen sharply on both the rallying dollar and significant step back in tariffs, falling more than 3% in USD from $3,327 to $3,216 at the time of writing. The stronger dollar has reduced the losses slightly for other currencies, but gold is still down 2.6% in GBP at £2,444, and 2.2% in Euros at €2,896.
The trade agreement means that US tariffs on Chinese goods will still be at 30%, and 10% for US imports to China, but the drop is still much larger than expected. The step down by the US in recent weeks has returned risk appetite to the market, and reduces the fears of recession. Rate cut expectations have been delayed to the Fed’s September meeting according to the CME FedWatch tool.
A ceasefire between India and Pakistan has also reduced safe haven demand after several days of escalation between the two nations. Combined with the news on tariffs, and gold is unsurprisingly facing some selling pressure and will remain vulnerable to further good news on the trade war.
If the US and China continue to negotiate lower tariffs, and other countries announce their own deals, then gold could see further price drops. Lower tariffs would be seen as positive in bringing inflation back down in the long-term, improving the Fed’s scope for rate cuts which would weaken the dollar and support gold. Shorter-term however, any positive trade news would add more pressure to gold, and $3,200 will be a key threshold now for the price to hold on to.
