The gold market has experienced a notable decline this week, recording its worst performance in six months. The recent 90-day trade truce between the United States and China has reduced geopolitical tensions, decreasing the demand for safe-haven assets like gold. This change in risk appetite has led to a significant sell-off in the precious metals markets.
The trade truce: a temporary relief for the markets.
The agreement reached between the United States and China involves mutual tariff reductions over a 90-day period. The United States will reduce its tariffs on Chinese products from 145% to 30%, while China will lower its tariffs from 125% to 10% on U.S. products. This commitment, the result of negotiations in Geneva, seeks to alleviate tensions arising from the trade war between the two powers.
The truce has been well received by financial markets, with major Wall Street indices recording significant gains. The relief in tensions has boosted the appetite for higher-risk assets, reducing the demand for safe-haven assets like gold.
Impact on the gold market.
The spot price of gold fell 1.8% on Friday, settling at $3,182.17 per ounce, accumulating a weekly loss of 4.3%. U.S. gold futures also dropped 1.3%, reaching $3,185.60. This decline represents the worst week for gold since November of last year.
According to Jim Wycoff, senior analyst at Kitco Metals, "the thawing of the trade war between the United States and China has rekindled the appetite for risk in the overall market. This change is causing profit-taking among futures traders, particularly in the gold market, and has triggered a wave of sell-offs throughout the week."
Repercussions on other precious metals.
The decline in demand for safe-haven assets has also affected other precious metals. Spot silver lost 1.6%, settling at $32.18 per ounce, with a weekly decline of over 1%. Platinum fell 0.6%, reaching $983.63, while palladium dropped 1.6%, settling at $952.98. Both metals registered weekly declines, reflecting the widespread decrease in demand for safe-haven assets.
Short-term and long-term outlook.
Although the trade truce has provided temporary relief to the markets, uncertainties remain regarding the definitive resolution of tensions between the United States and China. The possibility that negotiations may not culminate in a lasting agreement could rekindle the demand for safe-haven assets like gold.
Additionally, factors such as inflation, central bank monetary policies, and geopolitical tensions in other regions could influence the demand for precious metals in the future. Investors will need to stay alert to these developments to adjust their investment strategies accordingly.
Trade negotiations and other factors.
The recent decline in gold prices and other precious metals reflects the sensitivity of these assets to global geopolitical and economic dynamics. The trade truce between the United States and China has temporarily reduced the demand for safe-haven assets, but persistent uncertainties could quickly change the landscape.
Investors should closely monitor developments in trade negotiations and other macroeconomic factors to make informed decisions in their investment portfolios.
