Insights 
VT 
Potential Impact Of US-China Trade Talks
Gold prices have fallen to near $4,065 in the early Asian session, registering a 1.10% decrease. Renewed optimism regarding US-China trade talks is influencing market dynamics, potentially weakening the demand for safe-haven assets like Gold.
Traders have moved to lock in profits after record-setting rallies in gold prices. The upcoming meeting between US President Donald Trump and Chinese President Xi Jinping could further impact gold prices.
US Treasury Secretary Scott Bessent announced a potential US-China trade deal framework, with discussions expected this week. Bessent also indicated China’s possible delay in implementing a rare earth minerals licensing regime.
Recent US inflation data suggests upcoming rate cuts from the US Federal Reserve. Markets anticipate a 25 basis point rate cut, affecting gold’s opportunity cost.
Gold’s value is often considered a safe-haven investment, especially during economic turbulence. Central banks, particularly in emerging economies, are significant gold buyers, having added 1,136 tonnes in 2022.
Gold Market Sentiment
Gold generally has an inverse relationship with the US Dollar and US Treasuries. Geopolitical instability or lower interest rates can increase its price, while a strong Dollar can suppress it.
Gold’s sharp drop to near $4,050 is a classic reaction to positive geopolitical news, pulling it back from the all-time high of over $4,200 we saw last week. The sudden optimism around the US-China trade talks is prompting traders to take profits off the table. This move has pushed the Gold Volatility Index (GVZ) up by over 15% to 22.5, signaling significant uncertainty ahead.
Despite the sell-off, we must not ignore the Federal Reserve’s expected actions this week. Market data from the CME FedWatch Tool shows a near-certain 98% probability of a 25 basis point rate cut on Wednesday. Lower interest rates fundamentally support non-yielding gold by reducing its opportunity cost.
The primary headwind for gold right now is the strengthening US Dollar, with the DXY index climbing to a six-week high of 109.50. This “risk-on” sentiment, fueled by the potential trade deal, is pulling capital away from safe-haven assets. A sustained trade agreement could keep pressure on gold prices in the near term.
We should remember the patterns from the 2019 trade disputes, where optimistic headlines caused sharp but often temporary dips in gold’s uptrend. Given the conflicting signals, trading options may be prudent to capitalize on the heightened volatility without being fully exposed to a sudden reversal. A straddle or strangle could be effective ahead of the Trump-Xi meeting on Thursday.
For now, the key level to watch is the $4,000 psychological support mark, a level not tested since early September 2025. A break below this could signal a deeper correction, while a hold above it ahead of the Fed’s announcement might attract buyers. All eyes will be on the Fed’s statement on Wednesday and any concrete outcome from the presidential meeting later in the week.
