Gold prices retreated to around $3,230 per ounce on Wednesday, reversing gains from the prior session as improving risk sentiment eroded the metal’s safe-haven appeal.
Gold falls as trade tensions ease
The pullback came amid easing trade tensions between the United States and China, after both countries agreed to a temporary reduction in tariffs on each other’s goods for a 90-day period. The truce offered markets a reprieve from the prolonged uncertainty surrounding global trade policy, boosting equities and risk-sensitive assets, while diminishing demand for defensive plays such as gold.
Nonetheless, the downside in gold prices was cushioned by a weaker-than-expected US inflation report, which reinforced expectations that the Federal Reserve could adopt a more dovish monetary policy stance in the coming months. Data released on Tuesday showed the annual US consumer price inflation rate slowed to 2.3% in April, its lowest reading since February 2021 and below the consensus forecast of 2.4%. The report increased market bets that the Fed may still have room to implement at least two rate cuts this year, a scenario seen as supportive for non-yielding assets like gold, as lower interest rates reduce the opportunity cost of holding bullion.
Investor appetite for gold remains resilient
Meanwhile, investor appetite for gold remained resilient, as reflected in continued strong inflows into gold-backed exchange-traded funds (ETFs). According to the latest data from the World Gold Council, global gold ETFs saw net inflows of 115 tons in April, marking the fifth consecutive month of increases and the largest monthly inflow in over three years. Notably, China accounted for nearly 65 tons of the total, highlighting robust demand from the world's second-largest economy amid lingering domestic economic uncertainties, a depreciating yuan, and efforts by investors to diversify away from local equities and real estate.
In addition, geopolitical tensions in the Middle East and Ukraine, coupled with renewed volatility in currency markets—particularly following recent moves by the US to open discussions on foreign exchange practices with South Korea—provided an undercurrent of support for gold, helping to limit more aggressive profit-taking.
Looking ahead, analysts expect gold prices to remain sensitive to the interplay between global risk sentiment, US monetary policy expectations, and geopolitical developments. While easing trade tensions and resilient equity markets may continue to exert downward pressure on gold in the short term, persistent macro uncertainties, ongoing central bank purchases, and strong investment flows into ETFs are likely to underpin the metal’s medium-term outlook.
