Gold prices tumbled more than 3% on Monday (May 12) as substantial progress was made in trade talks between China and the U.S. over the weekend, with both sides sharply reducing tariffs on a reciprocal basis and suspending some tariffs for 90 days, which is boosting risk appetite and also pushing the U.S. Dollar Index a jump of 1.25% to 101.74, pressuring gold prices significantly.
Traders are also expecting Fed may cut interest rates only twice in 2025 (previously expected to be three times), which caused a rise in U.S. Treasury yields, another negative factor for gold. Spot gold was trading at $3,225 per ounce by the close of trading, plummeting $100.
Other news that could affect the precious metal including economists expecting US CPI growth to be flat at 2.4 per cent year-on-year in April, with core CPI growth expected to remain at 2.8 per cent year-on-year.
Meanwhile, data from the World Gold Council showed that the People’s Bank of China (PBoC) increased its holdings of gold reserves by 2 tonnes in April, the sixth consecutive monthly increase; Poland’s central bank increased its holdings by 12 tonnes to 509 tonnes in April; and the Czech central bank increased its holdings by 2.5 tonnes in April.
And swap market is now betting that the Federal Reserve will cut interest rates for the first time in July by 25 basis points and is expected to cut rates once more before the end of the year.
Insiders believe that fading risk aversion has interrupted gold’s upward trend, and may further test the May 1 low of $3,202 in the short term. After diving below this level, the gold price may further test the 50-day moving average (SMA) 3137 U.S. dollars, then dropping to 3100 U.S. dollars.
Conversely, if gold prices rally above $3,300, bulls will face resistance at $3,350; a breakout would next target $3,400.
In an interview with Kitco News, Nitesh Shah, WisdomTree’s head of European commodities and macroeconomic research, said that in addition to global trade uncertainty, the next major risk facing the U.S. economy is U.S. monetary policy and the independence of the Federal Reserve.
Shah pointed out that if investors begin to question the Fed’s independence and Trump begins to look for Powell’s successor, the market may lose confidence in the Fed. With significant geopolitical and monetary policy uncertainty, demand for hard assets such as gold will increase.
While gold is still trading below its all-time high of $3,500 an ounce set last month, Shah said he expects it to regain support and set a new price record sooner or later. Models show a baseline forecast of $3,610 in the first quarter of 2026, he said. However, with so much uncertainty in the financial markets, the risk is skewed to the upside and gold will reach $4,000 an ounce, he added.
