Insights 
VT 
Gold prices fell to a three-week low near $3,950 during the early Asian session, as hopes for progress in US-China trade talks weakened its safe-haven appeal. Profit-taking activity and signs of eased geopolitical tensions contributed to the decline in demand for Gold.
Trade Agreement Developments
US President Donald Trump expressed optimism about a trade agreement with China. US and Chinese officials reached an initial consensus to be finalised in a meeting between Trump and Chinese leader Xi Jinping.
The Federal Reserve’s decision on interest rates is anticipated, with markets expecting a 25 basis points rate cut, bringing the Federal Funds Rate target to 3.75%-4.00%. This would mark the second consecutive reduction, potentially supporting Gold as lower rates lessen the opportunity cost of holding it.
Central banks are the largest Gold holders and added 1,136 tonnes worth $70 billion to their reserves in 2022, marking the highest yearly purchase on record. Gold has an inverse correlation with the US Dollar and risk assets, tending to rise when the Dollar weakens or in times of market sell-offs.
The price of Gold is influenced by various factors, including geopolitical instability and interest rates. As a yield-less asset priced in dollars, its movement often mirrors fluctuations in the US Dollar value.
We see a familiar conflict in markets today, reminiscent of past standoffs between trade sentiment and monetary policy. Gold has pulled back to near $2,850 this week as optimism grows around new US-India trade negotiations. This price action mirrors the dips we saw years ago during the US-China trade talks.
Gold Market Dynamics
This pullback seems driven by short-term profit-taking after gold’s strong performance over the last quarter. Any concrete progress in the trade dialogue could further dampen safe-haven demand, presenting a headwind for the metal. Traders should be cautious of a potential slide towards the $2,800 support level if a preliminary deal is announced.
However, the Federal Reserve’s current position is capping any significant downside for gold. After holding rates steady at its September 2025 meeting, recent inflation data showing a dip to 3.1% has markets pricing in potential rate cuts for early 2026. Lower interest rates reduce the opportunity cost of holding a non-yielding asset like gold.
We must also consider the persistent, underlying demand from global central banks. Updated World Gold Council figures show central banks have already purchased over 800 tonnes of gold year-to-date in 2025, continuing the record-setting trend from 2022. This structural buying provides a solid floor under the market, making a sustained collapse in price unlikely.
For derivative traders, this environment suggests selling out-of-the-money puts below key psychological levels like $2,800 to collect premium. This strategy benefits from the view that while upside may be temporarily capped by trade news, the combination of future rate cuts and official sector buying will prevent a significant price drop. It allows one to take a cautiously bullish stance without needing an immediate rally.
