By: Aditi
Published on: May 16, 2025
In mid-May 2025, gold markets experienced a notable pullback as the recent thawing of US-China trade tensions diminished the metal’s allure as a safe-haven asset. After surging earlier in the year on fears of escalating tariffs, both futures and spot prices retraced gains, reflecting investors’ growing confidence that the world’s two largest economies may back away from a full-blown trade conflict.
Earlier this spring, President Trump’s announcement of sweeping tariffs triggered a rally in gold, traditionally seen as a hedge against political and economic uncertainty. On “Liberation Day” – April 2 – markets braced for new levies, and traders piled into gold futures (GC=F), driving prices to multi-year highs. Yet by mid-May, news that Washington and Beijing had agreed to roll back duties by 115% for a 90-day period sharply reduced haven demand. Gold futures eased by roughly 0.4%, trading near $3,213.50 per ounce, while spot gold slipped almost 1% to about $3,208.59 per ounce in early European trade.
The heart of the recent decline lies in the negotiated tariff suspension. Under the accord, each side consented to slash import duties, providing breathing room for broader trade talks. Investors interpreted the move as a de-escalation in hostilities, prompting capital to flow back into risk assets. Equity benchmarks in Asia and Europe climbed on the news, and the dollar strengthened, further pressuring gold.
Despite the near-term correction, economists at Capital Economics remain cautiously optimistic about gold’s medium-term trajectory. In late-May commentary, Hamad Hussain – their climate and commodities specialist – noted that structural drivers such as continued Fed easing expectations, geopolitical flashpoints in the Middle East, and steady central bank buying should underpin a robust baseline for gold prices through year-end. Their forecast: a close near $3,300 per ounce by December 2025, and a fresh record high around $3,600 by December 2026.
Fresh US inflation data also played into the market narrative. The Producer Price Index (PPI) unexpectedly fell by 0.5% month-on-month in April, marking the steepest drop since the COVID lockdowns of 2020. This decline tempered broader inflation concerns, swaying traders toward the view that the Federal Reserve might cut interest rates later in the year. Lower real yields typically benefit non-yielding assets like gold, suggesting that price volatility may persist around each Federal Open Market Committee (FOMC) meeting.
It wasn’t only gold feeling the heat. Oil markets also steadied as hopes for an Iran nuclear deal and larger OPEC+ output forecasts offset supply-side worries. Brent crude futures (BZ=F) dipped about 0.2% to $64.42 per barrel, while West Texas Intermediate (CL=F) held near $61.66. President Trump’s hint of an imminent pact with Iran – one that could lift sanctions and unlock millions of barrels per day – weighed on prices, as did the International Energy Agency’s projection of 380,000 barrels per day of additional global supply from Saudi Arabia and its allies.
Across currencies, the British pound enjoyed modest gains against the US dollar, trading around $1.3317 after data showed UK GDP grew by 0.7% in Q1 2025 – outpacing expectations of 0.6%. The Office for National Statistics also reported an unexpected 0.5% monthly drop in US PPI, which bolstered hopes of lower inflation on both sides of the Atlantic. Deutsche Bank strategist Jim Reid highlighted that easing wholesale price pressures helped cool inflation expectations, stirring speculation over earlier Fed rate cuts and fortifying the pound.
Gold’s pullback echoed patterns across asset classes. Equity markets rallied on easing trade concerns, while government bond yields ticked higher on fading safe-haven flows. Commodity-currency correlations sharpened: oil and gold often move in tandem when geopolitical risks spike, but diverged this month as oil’s supply outlook improved. Currency crosses such as GBP/EUR also reflected broader risk sentiment, trading near €1.1881 amid mixed Eurozone growth signals.
For portfolio managers and retail investors alike, the current environment underscores the importance of dynamic asset allocation. While gold may no longer offer the same immediate upside as in April, its role as a portfolio diversifier remains intact. Risk-off triggers – whether from renewed tariff threats, Middle East tensions, or unexpected central bank policy shifts – could swiftly reignite demand. Thus, many strategists recommend maintaining core gold exposures of 5-10% for balanced portfolios.
Several catalysts could sway gold in the weeks ahead:
Gold’s recent pullback highlights how swiftly market sentiment can shift when perceived risks ebb. The de-escalation of US-China trade tensions removed a key catalyst that fueled April’s rally, prompting investors to reassess allocations. Yet, the metal’s medium-term fundamentals remain intact: central bank demand, potential Fed rate cuts, and persistent geopolitical flashpoints should cap downside and set the stage for new highs in the coming years. Traders and investors should watch upcoming policy meetings and economic data releases closely, keeping gold within broader risk-management strategies as markets navigate an ever-evolving global landscape.
Comments
No comments yet. Be the first to comment!
Leave a Comment