Gold slumped back below $1 400 an ounce after the US and China agreed to a truce in their trade war, dealing a blow to havens that were bolstered in recent months by the long-running tensions as well as prospects for looser monetary policy.
Prices fell the most in a year after Donald Trump and Xi Jinping’s meeting over the weekend, at which the leaders of the two largest economies agreed to resume negotiations. Still, the setback may be temporary as investors now train their focus on US jobs data due on Friday for clues on the Federal Reserve’s next move on policy.
Bullion hit a six-year high last week as top central banks including the Fed adopted a more dovish tone and tensions spiked between the US and Iran. Driven by speculation that US interest rates may soon be headed lower, investors plowed into bullion-backed exchange-traded funds, which swelled 5% in June, the most since 2016.
''Gold was well overdue a period of consolidation and gold bulls should welcome it,'' after the recent rally, said Ross Norman, chief executive officer of gold brokerage Sharps Pixley. ''This provides a welcome entry point.''
Spot gold dropped as much as 2%, the biggest intraday fall in a year, and was at $1,387.91 at 9:28 a.m. in London. Prices rallied 8% last month. A gauge of the US dollar rose 0.3% on Monday after sagging 1.6% in June.
“I don’t think we collapse from here, but I do think we have seen the highs now,” said David Govett, head of precious metals trading at Marex Spectron Group in London.
After meeting Xi, Trump said he would hold off imposing additional tariffs on Chinese imports and delay restrictions against Huawei, letting US companies resume sales to China’s largest telecommunications equipment maker. Further details on the deal were light though.
With China-US trade tensions temporarily out of the way, traders’ focus is back toward fundamentals, and “fundamentals are still reasonably ok,” Wei Li, head of iShares EMEA investment strategy at BlackRock, told Bloomberg Television.
Still, gold will remain under pressure on Monday on improved risk sentiment, with downside seen at $1 380 and further falls dependent on the dollar strengthening more, Mumbai-based Kotak Securities said in a note.
In other precious metals, spot silver fell 0.5%, platinum fell 0.1% and palladium was 0.4% higher.