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Gold prices dropped nearly 4% over two days to $3,305, retreating from a Tuesday peak above $3,400, as optimism from a US-UK trade deal fueled risk appetite and strengthened the US Dollar. The US Dollar Index (DXY) surged 0.85% to 100.71, pressuring precious metals, while the Federal Reserve’s steady rate stance and upcoming US-China tariff talks added to market dynamics. Equities climbed, and Treasury yields rose, reflecting a shift away from safe-haven assets. This report examines gold’s decline, the trade deal’s impact, and technical trends shaping the market.
US-UK Trade Deal Sparks Dollar Rally
The announcement of a US-UK trade agreement, generating $6 billion in US revenue via a 10% tariff and $5 billion in export opportunities, lifted market sentiment and bolstered the US Dollar. The deal, aligning the UK with US economic security goals and opening markets for American beef, ethanol, and machinery, drove the DXY above 100.00 to 100.71. Despite tariffs remaining on most UK imports, the improved mood pushed US equity markets higher, with the Dow Jones up 1.6% to 41,113 and the S&P 500 gaining 0.2% to 5,617. This risk-on environment weighed heavily on gold, down 1.60% on Thursday alone.
US-China Talks and Fed’s Cautious Approach
Attention turned to Saturday’s US-China trade discussions in Switzerland, aimed at addressing tariffs capped at 145% on Chinese goods. The talks, led by key economic figures, follow months of tension from aggressive US trade policies, including 100% duties on foreign films. The Federal Reserve’s decision to hold rates at 4.25%-4.50%, supported by solid labor market data (April’s 177,000 Nonfarm Payrolls, 4.2% unemployment, and jobless claims at 228,000), reinforced the Dollar’s strength. Upcoming commentary from central bank officials on Friday, after the blackout period, will provide further clarity, with markets anticipating a July rate cut and two more by year-end.
Rising Yields and Central Bank Gold Buying
US Treasury yields climbed post-Fed decision, with the 10-year note up 10 basis points to 4.375% and real yields rising to 2.125%, curbing gold’s appeal. Despite the price drop, central banks continued accumulating bullion, with China adding 2 tonnes in April (totaling 2,294 tonnes over six months), Poland increasing by 12 tonnes to 509 tonnes, and the Czech Republic adding 2.5 tonnes. The World Gold Council noted this buying trend, supporting gold’s long-term outlook amid geopolitical tensions, including Russia-Ukraine and Israel-Hamas conflicts. Gold’s decline reflects short-term risk sentiment shifts rather than diminished safe-haven demand.
Technical Outlook for Gold
Gold’s rally stalled, plunging below $3,400 and opening the door to a further 1.60% drop to $3,311. The Relative Strength Index (RSI) signals waning buyer momentum, risking a slide under $3,300 toward the May 1 low of $3,202 if bearish pressure persists. A recovery above $3,350 could push XAU/USD back toward $3,400, offering bulls a chance to regain footing. The US Dollar’s breakout above 100.00, with support at 99.61 and resistance at 100.23, adds downward pressure on gold, while equity gains and rising yields reinforce the risk-on mood.
