Insights 
VT 
Gold Prices Decline Amid US-China Trade Agreement
Gold prices dropped over 3% on Monday, trading at $3,225, following a US-China tariff reduction agreement, which improved risk appetite. The US Dollar Index rose by over 1.25% to 101.74, contributing to Gold’s decline as US Treasury yields ascended.
Wall Street benefitted following the US-China trade compromise, with tariffs reduced significantly by both nations. The Fed is now projected to cut rates twice this year, a change from prior expectations of three reductions.
US Treasury yields increased, with the 10-year note yield rising 7 basis points to 4.453%. Concurrently, economists predict no change in April’s US CPI at 2.4% YoY, with the core CPI expected to stay at 2.8% YoY.
Central banks continue to expand their Gold reserves, with China adding 2 tonnes in April. The Polish and Czech National Banks also enlarged their Gold holdings, showcasing ongoing interest in Gold as a reserve asset.
Gold, valued for its historical and economic significance, is presently seen as a hedge against inflation and currency depreciation. It is inversely related to the US Dollar and Treasuries, often experiencing price movements due to geopolitical events or interest rate changes.
Impact of Rising Yields and Strengthening Dollar
The current decline in gold prices, caused in part by a stronger US dollar and rising Treasury yields, reflects a fast-shifting sentiment in the broader financial space. With the Federal Reserve adjusting its expected number of rate cuts from three to two, traders appear to have recalibrated their risk forecasts, resulting in a return to equities and a pullback from safe-haven assets like gold. This makes sense given the recent agreement between the US and China, which has lowered tariffs and boosted confidence in global trade momentum. In previous months, uncertainty had been serving as a support for gold, with investors hedging against both inflation and geopolitical tension. That floor now appears less firm.
As yields on the 10-year Treasury crept up by seven basis points to 4.453%, attention briefly shifted from inflationary concerns to relative opportunity costs. Whenever yields rise, interest in non-yielding assets tends to wane, and we’re seeing just that — capital cycling out of bullion into more productive corners. Meanwhile, the dollar index’s climb to 101.74 made gold more expensive for foreign investors, effectively dampening demand from abroad. Traders need to recognise that correlation plays a heavier hand in these conditions — rising yields and a stronger dollar often coincide, creating double pressure on metals.
Looking to central bank demand, it’s plain there remains a commitment to building gold reserves, with the People’s Bank of China continuing to accumulate. Poland and the Czech Republic have demonstrated similar intentions. These flows offer some support, but they occur in the background and often don’t offset short-term market shifts driven by interest rates and macro sentiment. We include them in models, but they don’t dictate immediate direction.
April inflation data is also set to hold steady, with both headline CPI and core CPI forecast to remain unchanged. That removal of downside surprises suggests fewer calls for urgency among policymakers. It’s not bad news, and it’s not quite good either — it offers the Fed enough reason to delay any rash moves. More than anything, it reinforces that rates will probably stay elevated longer than hoped, which means carry trades remain appealing while gold finds less room to rally.
Market Conditions and Investor Strategy
This week’s data should be taken with more than passing interest. If inflation indicators stay flat, and Treasury yields remain anchored above 4.4%, current pricing dynamics may stretch on. High open interest in forward contracts and options reflects ongoing positioning around interest-rate expectations. It’s our view that scenario-based strategies will function better than directional ones — not every rebound in gold should be seen as sustainable when yields are climbing.
Participants need to be acutely aware of the trade-offs. If risk appetite keeps building, there’s little urgency to rotate capital back into hedges. That being said, sudden surprises — whether in employment data, retail figures, or regional geopolitical stress — could create temporary volatility. We’re watching options skew and implied vols carefully, especially near critical data releases, as these give useful insights into how much protection the market is willing to pay for, and where the perceived pressure points lie.
At this point, positioning matters more than conviction. We are not in a market that rewards overconfidence. Tweaks to policy expectations and shifts in the macro narrative have proven more than capable of reversing price moves that had seemed directional just days earlier.
