Gold sinks most in a year as trade truce deals blow to bulls

Gold tumbled back below $1,400 an ounce after the U.S. and China reached a truce in their trade war, dealing a blow to havens.

Prices fell the most in a year after Donald Trump and Xi Jinping agreed to resume negotiations in a bid to resolve differences between the world’s top-two economies. Still, the setback may be temporary as investors now train their focus on U.S. jobs data due Friday for clues on the Federal Reserve’s next move on policy.

“Gold was well overdue a period of consolidation and gold bulls should welcome it,” said Ross Norman, chief executive officer of gold brokerage Sharps Pixley Ltd. “This provides a welcome entry point.”

“Gold was well overdue a period of consolidation and gold bulls should welcome it”

Ross Norman, cEO, Sharps Pixley Ltd.

Bullion hit a six-year high last week as top central banks including the U.S. Federal Reserve adopted a more dovish tone and tensions spiked between the U.S. and Iran. Driven by speculation that U.S. interest rates may soon be headed lower, investors plowed into bullion-backed exchange-traded funds, which swelled 5% in June, the most since 2016.

Gold futures dropped as much as 2.1% on the Comex in New York, the biggest intraday decline in over a year, and traded at $1,396.30 at 10:55 a.m. Prices rallied 7.8% last month. A gauge of the U.S. dollar rose 0.3% on Monday after sagging 1.6% in June.

Gold’s pull-back was a natural reaction to the dollar-friendly news, said David Govett, head of precious metals trading at Marex Spectron Group in London. “I don’t think we collapse from here, but I do think we have seen the highs now.”

After meeting Xi, Trump said he would hold off imposing additional tariffs on Chinese imports and delay restrictions against Huawei Technologies Co., letting U.S. companies resume sales to China’s largest telecommunications equipment maker. Further details on the deal were light though.

With China-U.S. trade tensions temporarily out of the way, gold traders’ focus is back toward fundamentals, and “fundamentals are still reasonably ok,” Wei Li, head of iShares EMEA investment strategy at BlackRock, told Bloomberg Television.

“We do not expect gold to fall significantly further,” Commerzbank analysts said in a Monday note to clients. “In our view, it is above all the upcoming ECB and Fed rate cuts, and the (geo)political risks, that argue against any pronounced and lasting price slide.”

Still, prices were seen remaining under pressure on Monday on improved risk sentiment, with the downside seen at $1,380 and further declines dependent on the dollar strengthening more, Mumbai-based Kotak Securities Ltd. said in a note.

In other precious metals, silver fell on the Comex, while platinum and palladium both gained on the New York Mercantile Exchange.