Tuesday saw a slight increase in gold prices due to the escalating U.S.-China trade tensions over rare earth minerals, which compelled investors to seek refuge in the safe-haven metal. The markets remained tense as high-level trade talks continued their second day in London.
Concerns about potential supply chain disruptions for critical tech and defense components, combined with anticipation for Wednesday’s U.S. inflation data, bolstered gold’s appeal. Spot gold rose 0.3% to $3,336.33 an ounce by 7:38 PM IST, while U.S. gold futures gained 0.1% to $3,357.20, reflecting cautious optimism in an uncertain market.
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Rare Earth Restrictions Fuel Investor Anxiety
The U.S.-China trade dispute, which reignited with reciprocal tariffs in April 2025, has escalated with China’s tightened restrictions on rare earth mineral exports, announced in May.
These minerals, vital for semiconductors, electric vehicle batteries, and defense systems, are at the heart of global supply chains, and fears of shortages are pushing investors toward gold as a hedge against economic fallout.
“The rare earth issue is a wake-up call for markets, and gold is benefiting as a reliable store of value,” said Maria Alvarez, a commodities analyst at Global Markets Insight.
Gold’s price, which soared to a record $3,500.05 in April amid trade war fears, has climbed 43.8% over the past year, underscoring its role as a bulwark against geopolitical risks.
Trade talks in London, led by U.S. Treasury Secretary Scott Bessent and Chinese economic official He Lifeng, aim to ease tensions over tariffs and rare earth access, but progress remains uncertain.
A vague statement from Chinese state media on Tuesday hinted at “complex challenges” in negotiations, further boosting gold’s safe-haven demand. Meanwhile, China’s central bank continued its gold-buying spree, adding to its reserves for the seventh consecutive month in May 2025, signaling strong institutional confidence in the metal amid global uncertainties.
Did you know?
China controls approximately 90% of global rare earth mineral production, making its export restrictions a significant driver of supply chain concerns and gold’s safe-haven demand in 2025.
Inflation Data Looms as Fed Decision Nears
Investors are also bracing for Wednesday’s U.S. Consumer Price Index (CPI) report, which could shape the Federal Reserve’s interest rate path at its June 17-18 meeting.
Economists project a 0.2% monthly CPI increase for May, equating to a 2.5% annual inflation rate, up from 2.3% in April. Persistent inflation could dampen hopes for rate cuts, now expected in September rather than June, according to the CME FedWatch Tool.
While gold, a non-yielding asset, typically performs better in low-rate environments, its safe-haven status is overriding interest rate concerns as trade risks dominate market sentiment.
“The rare earth standoff is amplifying gold’s allure, and the CPI data will only add to the volatility,” said Daniel Pavilonis, senior market strategist at RJO Futures.
He noted that any sign of stalled trade talks or higher-than-expected inflation could push gold prices closer to their April peak.
Other precious metals showed mixed performance: spot silver held steady at $36.72, near a 13-year high, while platinum dipped 0.1% to $1,218.85, and palladium fell 1.4% to $1,059.02.
What’s Next for Gold Markets?
As U.S.-China trade talks continue, gold’s trajectory hinges on whether negotiators can resolve rare earth restrictions and avert further escalation.
A failure to reach an agreement could push gold prices higher, especially if supply chain disruptions ripple through tech and defense sectors.
Meanwhile, the Federal Reserve’s response to the upcoming CPI data will be critical, with investors closely watching for signs of prolonged inflation that could further bolster gold’s appeal.
The metal’s ability to hold above $3,300 an ounce suggests resilience, but analysts warn that a breakthrough in trade talks could temper its upward momentum.
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