After having reclaimed some upward momentum during Thursday’s bounce, gold prices dropped back down towards the $3,250 mark on Friday. Perhaps the most important factor is that market sentiment is changing. At least in part, this positive shift is being driven by rising hopefulness—predictions of near-term de-escalation—in the escalating US-China trade war. This sudden shift in risk appetite has put material bearish pressure on gold, resulting in its recent drop as traders reposition themselves.
After making a short-lived comeback in trading on Thursday, gold was mostly trading in a consolidation range below and around $3,300. The bullish sentiment from the trade talks has spurred on traders. As a consequence, prices have plummeted. Markets jumped up after incendiary U.S. President Trump announced the beginning of negotiations to settle trade disputes. If so, these discussions may go a long way toward reducing the unnecessary friction between the world’s two largest economies.
As the market sentiment shifted for the better, traders were quick to pounce. They took the chance to reduce their holdings of gold, which has historically been a safe haven asset during times of stress and volatility. Gold prices face mounting bearish pressure. In these later years, they just can’t keep themselves above the critical barrier of about $3,300 in value. Bulls are still seen as having an overall advantage while prices remain above this support level, analysts note. The recent declining trend has understandably raised concerns about possible future performance.
Ever since the conclusion of the U.S.-China trade deal negotiations optimism has surged. This move follows a period of heightened trade tensions and tariffs that drove investors into safe haven vehicles like gold. Almost immediately after President Trump’s tweet about beginning negotiations, a new bull run began among riskier assets. Consequently, investors are beginning to reconsider gold’s place within their portfolios. As a result, market participants will be looking for any additional news out of trade negotiations that would continue to shape market sentiment.
Despite this recent correction, some experts believe that the long-term forecast is more bullish for gold. Should talks break down, or if North-South Korean relations worsen once more, gold may reclaim its place as a sought-after safe haven investment. Until then, we suspect that market participants will remain open to moves beyond the typical safe haven trades.