Gold on Track for Sharpest Weekly Fall in Six Months Amid Trade Optimism and Dollar Strength
Gold prices are heading for their most substantial weekly decline in half a year, as a stronger US dollar and signs of easing tensions between the United States and China encourage investors to retreat from traditional safe-haven assets.
In early trading Friday, the price of spot gold dropped 0.8% to $3,213.56 (£2,530) per ounce, bringing its total losses for the week to 3.3%. This marks the steepest weekly downturn since November 2024. Despite this pullback, the yellow metal remains up around 22% year-to-date, having been boosted earlier by concerns over US trade policy and global economic instability.
The recent slide comes just weeks after gold climbed to a new all-time high of more than $3,300 an ounce, fuelled by growing expectations that the US Federal Reserve would soon pivot towards interest rate cuts amidst mixed economic signals. Traders increasingly viewed bullion as an inflation hedge and a safe place to park capital amid geopolitical uncertainty.
However, sentiment shifted this week after Washington and Beijing announced they would pause some tariffs imposed during a months-long trade dispute. The temporary relief was seen by investors as a sign of progress, reducing the perceived urgency to hold non-yielding assets such as gold.
“The renewed optimism around an easing in the US-China trade war prompted investors to rotate out of defensive assets and into riskier investments,” said Ilya Spivak, head of global macro at US brokerage Tastylive. “This sparked broad-based selling pressure in the gold market.”
Indeed, the improvement in diplomatic tone between the world’s two largest economies provided a tailwind for broader markets. According to Bloomberg, Beijing and Washington agreed to suspend several tariffs for a 90-day period, giving negotiators time to secure a longer-term deal. While not a formal resolution, the move has helped calm markets that had been rattled by the escalating tit-for-tat measures introduced since 2023.
At the same time, the US dollar has gained ground, up 0.4% this week and on track to extend its winning streak for a fourth consecutive week. The dollar index — which measures the greenback against a basket of major currencies — has been buoyed by relatively robust US economic data. April’s producer prices came in below expectations, and retail sales growth softened. Meanwhile, consumer inflation rose at a slower-than-anticipated pace, according to figures from the Bureau of Labor Statistics.
Such data has kept traders guessing about the Federal Reserve’s next move. While markets have priced in a potential rate cut this summer, stronger-than-expected employment and GDP data earlier in the year suggest the Fed may remain cautious. Currently, the CME FedWatch Tool gives a near 60% probability of a rate cut at the Federal Open Market Committee’s next meeting.
Gold typically fares best in environments where interest rates are low or falling, as it offers no yield of its own. As such, shifting rate expectations have an outsized impact on investor appetite for bullion.
Despite the near-term volatility, some analysts see continued demand for gold as part of a defensive investment strategy. “There’s still strong underlying support for gold. Every price dip seems to bring in fresh buyers,” said Tim Waterer, chief market analyst at KCM Trade. “Uncertainty over global growth and inflation hasn’t gone anywhere.”
Indeed, broader macroeconomic concerns continue to loom large: stubborn inflation in Europe, war in Ukraine, Middle East tensions, and unsteady post-pandemic recoveries in developing economies.
Meanwhile, a resurging appetite for risk was evident elsewhere in the market. Bitcoin has surged above $100,000 for the first time on record, marking a dramatic rebound of over 25% from its May low of $76,000. The rally comes as digital assets benefit from renewed investor interest following speculation that central bank liquidity may return to the market sooner than anticipated.
While gold’s short-term slide may reflect improved sentiment and dollar strength, the longer-term outlook remains heavily influenced by central bank policy, volatile geopolitics, and investor demand for diversification in uncertain times.
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