Gold prices (XAU/USD) have dropped to a one-week low amid a shift in global market sentiment, with investors moving away from safe-haven assets. Positive news from US-China trade talks, coupled with a strengthening US Dollar, has contributed to this sharp decline in gold prices.
US-China Trade Deal Sparks Global Optimism
Recent developments in US-China trade relations have played a central role in the downturn. High-level trade discussions in Switzerland ended with positive outcomes, as US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer confirmed the completion of a trade deal with China. China’s Vice Premier He Lifeng also stated that “substantial progress” had been made, further fueling optimism in global markets.
This news prompted a shift in investor sentiment, as funds flowed away from gold and into riskier assets such as equities. The global “risk-on” mood significantly reduced the demand for gold, traditionally viewed as a safe-haven asset during times of uncertainty.
Strong US Dollar and Economic Optimism Add Pressure on Gold
Alongside the trade developments, the US Dollar has been buoyed by the Federal Reserve’s hawkish stance. Despite pausing rate hikes, the central bank has indicated it is not ready to cut rates, which continues to support the greenback. A stronger USD makes gold more expensive for foreign investors, further diminishing its appeal.
In addition to the Fed’s policy signals, improving economic data has alleviated fears of a US recession. Positive economic signals from various sectors have boosted confidence in the resilience of the US economy, adding another layer of pressure on gold prices.
However, while the trade talks have improved sentiment, there remains caution among investors. Both the US and China have not yet agreed to roll back existing tariffs—US tariffs on Chinese goods stand at 145%, while China’s tariffs remain at 125%. This uncertainty has led some market participants to hold back from making bold moves.
Key Events to Watch: US Inflation Data and Fed Chair Powell’s Remarks
Looking ahead, two key events this week are expected to influence gold prices. The release of US inflation data and comments from Federal Reserve Chair Jerome Powell are likely to provide important clues on the future direction of interest rates. These developments will be crucial for understanding the broader economic outlook and the potential impact on gold prices.
Technical Analysis: Ascending Broadening Wedge Signals Potential Bearish Trend
From a technical perspective, gold’s price action has formed an Ascending Broadening Wedge pattern, which typically signals a potential trend reversal. The pattern consists of higher highs and higher lows, gradually widening over time, suggesting increasing uncertainty in the market’s direction.
Gold’s price movement within this wedge has been characterized by strong swings, with the metal reaching a high above $3,500 in April, before reversing. The price is now testing a key support level near $3,275, representing a one-week low. If gold falls below this support, it could signal a deeper bearish move.
Traders are awaiting confirmation before committing to new positions, with the volume profile and price action indicating caution. A breakout or breakdown from the wedge could lead to sharp price movement in either direction.
Conclusion
Gold prices have fallen to a one-week low, driven by optimism surrounding the US-China trade deal, a stronger US Dollar, and easing fears of a US recession. While the Fed’s hawkish stance continues to support the dollar, the lack of clarity on tariff rollbacks has kept market participants cautious. Traders are now looking to key economic data and Fed comments for further direction, with gold’s near-term outlook dependent on these developments.
