Linh Tran
Gold prices experienced a mild correction last week as market enthusiasm gradually faded, in the context of improved investor sentiment thanks to positive signals from U.S.–China trade negotiations and lower-than-expected U.S. inflation data.
A temporary agreement between the world’s two largest economies to reduce import tariffs over the next 90 days—specifically, the U.S. lowering tariffs from 145% to 30%, and China cutting tariffs on U.S. goods from 125% to 10%—helped ease prolonged trade tensions. This has reduced gold’s appeal as a safe-haven asset, while capital flows shifted back toward riskier assets such as equities and the U.S. dollar.
At the same time, U.S. consumer inflation data (CPI) released last week showed further easing in price pressures, with core CPI for the month rising only 0.2%—lower than the market expectation of 0.3%. Similarly, the annual CPI figure for April came in at 2.3%, below both the expected and previous reading of 2.4%. This has further strengthened expectations that the Federal Reserve (Fed) could maintain a stable monetary policy stance, or even move toward easing if the downward inflation trend continues.
However, this represents a double-edged factor for gold. On one hand, expectations of future interest rate cuts provide potential support for gold prices, which are sensitive to opportunity costs. On the other hand, a less risky macro environment weakens gold’s role as a safe-haven, thereby limiting its short-term upside momentum.
On the geopolitical front, however, risks remain significant. Over the weekend, Russia launched a large-scale drone attack on Ukraine—the biggest since the beginning of the war—just days after peace talks in Istanbul failed. This development has raised fresh concerns over a potential escalation of conflict in Eastern Europe, which could trigger renewed demand for defensive assets like gold.
Notably, U.S. President Donald Trump is expected to hold a phone call with Russian President Vladimir Putin early this week in an attempt to broker a 30-day ceasefire. The outcome of this conversation may play a pivotal role in shaping short-term market sentiment. If the peace initiative yields no clear result, defensive sentiment could quickly return—providing renewed support for gold.
In the context of intertwined macro and geopolitical factors, gold prices are likely to continue trading within a narrow range as markets await clearer signals from the high-level dialogue and upcoming economic data to determine the next directional move.
Tran is Market Analyst at XS.com
