By Linh Tran

Gold experienced its second consecutive sharp decline, losing nearly 1.8% in yesterday’s session. This marked a clear corrective move following a strong prior rally and reflected a short-term shift in market expectations, driven by two key factors: progress in U.S.–China trade negotiations and the notable rebound of the U.S. dollar.

The highlight of the day was the first official meeting between U.S. Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer with senior Chinese officials in Switzerland. This was the first formal dialogue since Washington resumed its aggressive trade strategy under President Trump.

According to the New York Post, the Trump administration is reportedly considering cutting tariffs on Chinese goods from 145% to 50% as early as next week—a move widely interpreted by markets as a step toward easing tensions after a series of tariff hikes and retaliatory measures in recent weeks. The immediate market reaction was a pullback in safe-haven assets such as gold, while risk appetite modestly improved across equities and currencies.

However, from a broader perspective, the current round of talks appears more exploratory than substantive. Structural disagreements—including issues related to industrial subsidies, intellectual property rights, and technological supply chains—remain unresolved. Historically, such negotiations have often been derailed by confrontational rhetoric or unilateral actions from either side. As a result, the risk of an expanded trade conflict still lingers, especially if recent positive signals are not followed by concrete actions in the near term.

Beyond trade factors, gold’s decline was also amplified by the strength of the U.S. dollar. The DXY index rose for a second consecutive session, climbing back toward the 100 mark—the highest level in nearly three weeks. The dollar’s strength reflects growing market expectations that the Federal Reserve will maintain a cautious policy stance. Investors are closely watching for upcoming signals, as the Fed is expected to provide further guidance on its rate path. While expectations for a rate cut in September persist, this probability remains fluid and highly sensitive to new macroeconomic data.

Despite the current downward pressure, gold’s medium-term outlook remains intact. The recent pullback appears to be a natural correction following profit-taking and reflects temporary softness driven by short-term developments. However, underlying market risks continue to support the case for gold over a longer horizon. These include: U.S.–China Trade Tensions: As noted, negotiations are still in their early stages, with no resolution to the core issues. Any renewed escalation—whether through political statements or new tariff policies—could quickly reverse sentiment and drive safe-haven flows back into gold.

Monetary Policy Outlook: While the Fed is maintaining high interest rates to combat inflation, much of the market still anticipates a policy pivot later this year, especially if growth weakens or the labor market softens. In such an environment, gold tends to perform well.

Geopolitical Risks: Persistent instability in key regions remains a source of concern. The war in Ukraine shows no clear path to resolution, while the Middle East continues to face mounting tensions with the risk of broader conflict. These conditions reinforce gold’s role as a strategic hedge in global investment portfolios.

The current correction in gold is healthy and justified in the context of recent gains and evolving macro narratives. Nevertheless, the medium-term outlook remains constructive. Investors should continue monitoring macroeconomic data and the next stages of the U.S.–China dialogue to reassess directional biases for gold in the coming weeks.

Tran is Market Analyst at XS.com