Trade War Truce Between China, the US Triggers Gold Selloff

The price of gold dropped below $4,000 an ounce as easing trade tensions between China and the United States triggered a selloff. Spot gold slipped by over 3% to reach $3,980 per ounce, with diplomats from both countries preparing a series of achievements for Chinese leader Xi Jinping and President Donald Trump to announce at their upcoming summit this week. 

The trade deal between the world’s two largest economies could help reduce certain economic uncertainties and geopolitical strains that have supported demand for the precious metal. 

The surge that pushed gold to an all-time high of just over $4,380 an ounce last week has since reversed amid indications that the metal had entered overbought territory. Recent gains were fueled by expectations of the Federal Reserve reducing interest rates, which attracted retail investors, helping drive prices higher. 

Despite the pullback, gold remains more than 50% higher for the year, supported by robust purchases from central banks around the world. 

Saxo Bank’s Head of Commodities strategy, Ole Hansen, explains that gold is experiencing a much-needed correction driven by developments in trade negotiations. He notes that while it’s possible we’ve already reached this year’s peak, a deeper pullback could take longer to rebound from, especially as traders become more cautious and the stock market maintains its upward momentum. 

In a recent note, analysts from Citigroup posited that America’s renewed focus on trade negotiations with China, the anticipated resolution of the U.S. government shutdown, and changing price momentum in the gold market could result in a decline in gold prices over the next couple of weeks. They project that bullion could fall to around $3,800 within three months. 

At the moment, almost 1,000 gold industry professionals, including refiners, brokers and traders have gathered in Japan for the LBMA/LPPM Global Precious Metal’s Conference. The event, which was organized by the London Bullion Market Association and began on Sunday, comes amid heightened competition for skilled bullion traders. 

Speaking at the event, John Reade of the World Gold Council explained that while central bank demand had eased, many dealers would welcome a deeper market correction. He added that discussions at the conference pointed to around $3,500 per ounce as a healthy level for the precious metal’s market given that it was still a remarkable high price. 

Gold may gain support this week as major central banks meet, with expectations that the Federal Reserve will reduce rates slightly, while the Bank of Japan and the European Central Bank could retain existing rates, potentially boosting demand for the non-interest-bearing metal. 

Companies like Platinum Group Metals Ltd. (NYSE American: PLG) (TSX: PTM) that are involved in gold production will be watching keenly as the major central banks make their interest rate decisions that could affect the gold market. 

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