Gold Prices Drop as U.S.-China Trade Tensions Ease, Investors Eye Fed’s Next Moves

Gold prices declined on Wednesday, May 14, 2025, as easing U.S.-China trade tensions reduced demand for safe-haven assets, with spot gold falling 0.7% to $3,226.11 per ounce and U.S. gold futures dropping 0.6% to $3,229.50. The pullback follows a temporary 90-day tariff reduction agreement between the U.S. and China, which has shifted investor focus to upcoming U.S. inflation data and Federal Reserve policy decisions. Meanwhile, other precious metals like silver, platinum, and palladium also saw declines, reflecting a broader market shift toward riskier assets.

Gold’s Decline Amid Trade Optimism

The de-escalation of trade tensions, marked by the U.S. reducing its “de minimis” tariff on low-value Chinese shipments to 30% from 145%, has diminished gold’s appeal as a safe-haven asset. President Donald Trump’s announcement on Monday that tariffs on Chinese imports are unlikely to return to their peak levels further bolstered market confidence, driving investors toward equities and away from gold. A Reuters report noted that this tariff rollback, combined with China’s reduction of duties on U.S. goods to 10%, has created a “risk-on” sentiment, with the S&P 500 climbing 0.72% and the Nasdaq Composite surging 1.61% on Tuesday.

Kyle Rodda, a financial market analyst at Capital.com, emphasized that “positive developments in U.S. trade policy are diminishing the appeal of gold in the short-term.” He highlighted $3,200 as a critical support level, warning that further progress in trade negotiations could push gold prices lower. This follows a volatile period for gold, which hit a record high of $3,500.05 per ounce in April amid heightened trade war fears but has since lost over 8% from that peak, according to posts on X.

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Inflation Data and Federal Reserve Outlook

Investors are now focused on the upcoming Producer Price Index (PPI) data, set for release on Thursday, May 15, 2025, which will provide further insight into the Federal Reserve’s interest rate trajectory. The U.S. Department of Labor reported a 0.2% rise in the Consumer Price Index (CPI) for April, below the 0.3% expected by economists, signaling cooling inflation. This follows a 0.1% CPI decline in March, the lowest annual inflation rate (2.3%) since February 2021.

Gold, traditionally a hedge against inflation, thrives in low-interest-rate environments, as it does not yield returns like bonds or equities. The market currently anticipates 53 basis points of rate cuts in 2025, with the first cut likely in September, according to Reuters. However, Federal Reserve Chairman Jerome Powell’s cautious stance, reiterated on May 7, has tempered expectations. Powell noted that sustained tariffs could increase inflation and slow growth, but the Fed remains in a “wait-and-see” mode, keeping the federal funds rate at 4.25%–4.5%. This has added downward pressure on gold, as higher interest rates increase the opportunity cost of holding non-yielding assets.

Trump’s ongoing criticism of Powell, including calls for immediate rate cuts citing falling prices for gas and groceries, has fueled market uncertainty. Posts on X suggest that some investors remain bullish on gold, predicting a potential rebound to $4,000 per ounce if trade talks falter or geopolitical tensions rise.

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Broader Precious Metals Market

The decline in gold prices has rippled across other precious metals. Spot silver fell 0.8% to $32.61 per ounce, platinum remained steady at $988.65, and palladium dropped 0.9% to $948.60. Silver, which has gained 3% weekly, benefits from industrial demand but faces similar pressures as gold. Platinum and palladium, used heavily in automotive catalytic converters, are also sensitive to trade dynamics, as tariff relief could boost global manufacturing and demand for these metals.

China’s central bank, a key driver of gold demand, continued its buying spree, adding to reserves for the sixth consecutive month in April. However, a holiday in China from May 1–5 dampened physical gold demand, contributing to earlier price dips. Meanwhile, gold exchange-traded funds (ETFs) saw record inflows of 115.3 metric tonnes ($11.2 billion) in April, the highest since March 2022, driven by trade war concerns and inflation hedging, according to the World Gold Council.

Did You Know?
Gold prices surged 28.6% in 2025, driven by central bank buying and trade war fears, despite recent pullbacks from a record $3,500.05 per ounce.

Geopolitical and Economic Context

While trade optimism has reduced safe-haven demand, lingering geopolitical risks could support gold prices. Recent progress in Ukraine peace talks and an India-Pakistan ceasefire have eased global tensions, further pressuring gold. However, analysts warn that unresolved issues, such as Trump’s proposed 100% tariffs on foreign pharmaceuticals and movies, could reignite volatility.

The U.S. economy contracted at a 0.3% annualized rate in the first quarter of 2025, driven by businesses rushing to import goods ahead of expected tariffs, according to Reuters. This contraction, coupled with a $7.5 trillion projected deficit increase over the next decade under Trump’s tax cut plans, underscores gold’s long-term appeal as a hedge against fiscal strain.

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Analyst Insights and Market Outlook

Analysts remain divided on gold’s trajectory. Adrian Ash, director of research at BullionVault, noted that gold’s “feverish response” to April’s tariff chaos made it vulnerable to pullbacks as trade sentiment improves. However, TD Securities’ Daniel Ghali argued that limited selling activity among Western investors suggests downside risks are constrained, with gold potentially resuming its upward trend if trade talks stall.

Bank of America forecasts gold reaching $4,000 per ounce in the second half of 2025, driven by central bank buying and potential stagflation risks. Citi analysts also see a bull case for $3,500 by year-end if U.S. economic growth falters. Conversely, Kitco Metals’ Jim Wyckoff cautioned that gold bulls have lost near-term technical momentum, with resistance levels at $3,250 and $3,275.

Conclusion

Gold’s decline reflects a market shift toward riskier assets as U.S.-China trade tensions ease, but its long-term outlook remains robust amid inflation concerns, geopolitical uncertainties, and potential Fed rate cuts. Investors should monitor Thursday’s PPI data and ongoing trade developments for clues on gold’s next move. As Rodda noted, a breach below $3,200 could signal further declines, but gold’s role as a safe-haven asset ensures its relevance in turbulent times.