Insights 
VT 
Gold prices fell to a two-week low near $4,000 in the early Asian session on Tuesday. This followed a US-China agreement on a trade deal framework, causing traders to anticipate the Federal Reserve decision on Wednesday. A potential trade deal between the US and China could affect gold’s status as a safe-haven asset.
US Treasury Secretary confirmed that the agreement would avert a 100% tariff on Chinese imports and include a TikTok sale deal. Trump and Xi Jinping are set to meet in South Korea on Thursday during an Asian summit. Meanwhile, markets are expecting a US interest rate cut, with a 97% chance of a quarter-point reduction, potentially supporting gold prices.
Gold As A Safe Haven
Gold has been a store of value throughout history and is commonly viewed as a safe-haven investment. Central banks, aiming to bolster their currencies, have accumulated 1,136 tonnes of gold valued at $70 billion in 2022. Gold has an inverse relationship with the US Dollar and Treasuries, typically rising when these assets weaken. Geopolitical tensions or recession fears can drive gold prices up, while stronger dollar generally holds gold prices steady. The price is influenced by many factors, with global economic conditions playing a key role.
We are seeing gold pull back to a two-week low near the $4,000 mark as the market weighs two conflicting forces. The positive news on a US-China trade framework is creating selling pressure on the safe-haven metal. However, an expected interest rate cut from the Federal Reserve this Wednesday is providing underlying support.
The potential trade deal is significant, as we’ve seen trade frictions impact global growth for years. Data showed that US goods imports from China fell by over 20% back in 2023, so a formal agreement could spark a major risk-on rally in equities, pulling money away from gold. Traders looking at this angle might consider shorting gold futures or buying put options ahead of the Trump-Xi meeting on Thursday.
On the other hand, the market is giving a 97% probability that the Fed will cut interest rates this week. With core inflation having finally cooled to below 3% this year and recent economic growth figures softening, a rate cut seems very likely. Lower rates reduce the appeal of holding cash and bonds, making non-yielding gold a more attractive asset for some investors.
Upcoming Market Volatility
This creates a setup for intense volatility in the coming days, with two powerful, opposing narratives set to play out. The Fed’s decision on Wednesday and the outcome of the presidential meeting on Thursday will likely cause sharp swings in the gold price. Derivative traders could look at strategies that profit from a large price move in either direction.
We must also remember the broader context of gold’s inverse relationship with the US Dollar and stocks. The S&P 500 has performed very strongly over the past 18 months, which helps explain some of the resistance gold has faced even at these high prices. Still, the massive gold purchases by central banks, which hit record levels starting in 2022 and have continued since, provide a strong long-term floor for the price.
