Gold retreats 3% amid optimism after US – China trade agreement

Gold prices took a sharp hit at the start of the trading week on May 12, 2025, dropping to $3,207.82—a two-week low—as a US-China trade truce reignited market optimism and pressured safe-haven assets. The agreement, which rolls back tariffs for 90 days, saw the US reduce levies on Chinese imports from 145% to 30%, while China lowered duties on US goods from 125% to 10%, easing long-standing trade tensions. With the US Dollar holding gains and Wall Street posting strong intraday advances, XAU/USD is on the verge of breaching its May low, as investors shift focus to upcoming US inflation data for further market direction.

The US-China tariff reduction, announced jointly by Washington and Beijing, has significantly de-escalated trade war fears, fostering a risk-on sentiment across financial markets. The Dow Jones climbed 2.4% to 42,220 points, and the S&P 500 rose 2.5% to 5,802 points, reflecting renewed confidence in global economic stability. The US Dollar Index (DXY) steadied at 101.60, maintaining most of its intraday gains despite a slight pullback in US equities from their session highs. For gold, this risk-on mood has intensified selling pressure, with XAU/USD testing its lowest levels since early May and poised for further declines if the bullish market sentiment persists.

Attention now turns to Tuesday’s US Consumer Price Index (CPI) release for April, expected to hold steady at 2.4% year-over-year, with a monthly increase of 0.3% following a 0.1% dip in March. A higher-than-anticipated CPI could bolster the US Dollar further, adding downward pressure on gold by signaling tighter Federal Reserve policy, while a softer reading might temper the Dollar’s rally, offering gold a brief reprieve. The CPI data will be pivotal in shaping expectations for inflation and monetary policy, especially as the tariff rollback is anticipated to alleviate some of the inflationary pressures that previously drove gold to record highs.

From a technical perspective, XAU/USD’s bearish momentum is clear, with the pair slipping below a flat 20-day Simple Moving Average (SMA) while remaining well above the bullish 100 and 200 SMAs. Technical indicators on the daily chart have turned sharply negative, crossing below their midlines, suggesting potential for lower lows. The pair’s recent slide reflects fading fears of a global economic slowdown, which had fueled its earlier rally, as the tariff détente diminishes gold’s safe-haven appeal. With optimism prevailing, XAU/USD risks breaking below its May low of $3,202, unless upcoming data shifts market dynamics.