Gold prices dropped to a three-week low of about $3,950 during the early Asian market. This decline is due to hopes fading for progress in US-China trade talks, which affected gold’s appeal as a safe-haven asset. Profit-taking and reduced geopolitical tensions also lowered demand for gold.

Trade Agreement Developments

US President Donald Trump is hopeful about a trade agreement with China. US and Chinese officials have reached an initial agreement that will be finalized in a meeting between Trump and Chinese leader Xi Jinping. Markets are eagerly awaiting the Federal Reserve’s decision on interest rates. A cut of 25 basis points is expected, which would bring the Federal Funds Rate target to 3.75%-4.00%. This would be the second rate cut in a row, making gold more appealing since lower rates decrease the cost of holding it. Central banks are the biggest holders of gold and added 1,136 tonnes worth $70 billion to their reserves in 2022, setting a record for yearly purchases. Gold typically moves in the opposite direction of the US Dollar and risk assets, rising when the Dollar weakens or during market downturns. Various factors influence gold prices, including geopolitical instability and interest rates. As gold yields no interest and is priced in dollars, its value often tracks changes in the US Dollar. Today’s market shows a familiar tension, with competing influences from trade sentiment and monetary policy. Gold has retreated to around $2,850 this week as optimism rises over new US-India trade talks. This price movement resembles earlier dips during US-China trade discussions.

Gold Market Dynamics

This price drop appears to be driven by short-term profit-taking following gold’s strong performance last quarter. Any solid progress in trade talks could further reduce safe-haven demand, putting pressure on gold prices. Traders should be careful as prices might test the $2,800 support level if a preliminary deal is announced. However, the Federal Reserve’s current stance is likely preventing significant losses for gold. After maintaining rates at its September 2025 meeting, recent inflation figures showed a decrease to 3.1%. This has led markets to anticipate rate cuts in early 2026. Lower rates make holding non-yielding assets like gold more attractive. We should also remember the ongoing demand from global central banks. Latest data from the World Gold Council indicates that central banks have already bought over 800 tonnes of gold in 2025, continuing the record purchases from 2022. This steady buying provides strong support for the market and makes a major price collapse unlikely. For derivative traders, this situation suggests selling out-of-the-money puts below key psychological levels like $2,800 to collect premiums. This approach is based on the idea that while trade news may temporarily limit upside potential, future rate cuts and continued buying from official sectors will help stabilize prices. It allows for a cautiously optimistic position without needing an immediate price rally. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now