Gold Trading Alert: Gold prices plummeted nearly 1% to a three-week low! Safe-haven sentiment collapsed ahead of the US-China summit. Can the Fed reverse the decline?
2025-10-29 07:04:10
Spot gold hovered near a three-week low in early Asian trading on Wednesday (October 29), currently trading around $3,940 per ounce. Spot gold hit an intraday low of $3,886.51 on Tuesday, its lowest level since October 6, before closing down 0.7% at $3,952.54 per ounce. The surge in optimism surrounding Sino-US trade has weakened gold's appeal as a traditional safe-haven asset. Investors once viewed gold as a protective shield against uncertainty, but now that shield appears to be drying up.
Senior Chinese and American officials have finalized the framework of a potential trade agreement, and Trump and Chinese leaders are expected to meet in South Korea on Thursday, fueling market expectations of easing trade tensions. Wall Street's three major indices subsequently hit new all-time highs. The Dow Jones Industrial Average rose 0.34% to 47,706.37, the S&P 500 edged up 0.23% to 6,890.89, and the Nasdaq surged 0.8% to 23,827.49. Tech giants like Nvidia saw their shares surge 5%, pushing their market capitalization close to $5 trillion. Microsoft also saw a 2% intraday increase due to its restructuring agreement with OpenAI. Amid this optimism, demand for gold as a safe haven has significantly decreased.
Market attention will turn to the Federal Reserve's interest rate decision and Fed Chairman Powell's press conference on this trading day.
An in-depth analysis of the root causes of the recent drop in gold prices shows that the positive progress in Sino-US trade negotiations is undoubtedly the primary driving force.
Last weekend, senior Chinese and American economic officials reached a consensus on the outline of an agreement, the core of which includes the reduction of US tariffs on Chinese goods. Thursday's summit between the two leaders will be a key milestone.
Jim Wyckoff, senior analyst at Kitco Metals, put it bluntly: "The U.S.-China trade tensions have indeed eased, which is bad news for safe-haven metals."
Looking back at the crazy rise in gold prices this year - currently still exceeding 50%, mainly due to geopolitical conflicts, trade frictions and expectations of US interest rate cuts - now that the trade haze has dissipated, one of the support pillars of gold has collapsed in an instant.
Global market sentiment subsequently shifted towards risk appetite, with investors selling gold and moving into equities and technology stocks. Nvidia CEO Jensen Huang's announcement of a $500 billion order to build seven AI supercomputers for the U.S. Department of Energy further fueled market enthusiasm.
In Tokyo, Trump also praised Sanae Takaichi, Japan's first female prime minister, and signed an agreement to increase the supply of key minerals. While these geopolitical maneuvers did not directly target gold, they indirectly reinforced the narrative of a recovery in "risk assets," dimming gold's safe-haven image.
Meanwhile, investors are closely watching the Federal Reserve's two-day policy meeting, with the interest rate decision, which concludes on Wednesday, becoming a key market focus. The Fed is widely expected to cut rates by 25 basis points, with the CME FedWatch tool showing a probability of over 90% for another cut in December. In theory, a rate cut should be positive for gold, reducing holding costs and stimulating demand for non-yielding assets.
But the reality is far from simple. U.S. Treasury yields fell on Tuesday, with the 10-year yield falling 1.2 basis points to 3.981% and the two-year yield remaining flat at 3.496%. The yield curve showed a bullish flattening trend, which typically signals the start of a Federal Reserve easing cycle. However, the preliminary estimate of the ADP National Employment Report showed that U.S. private sector jobs increased by an average of 14,250 per week in the four weeks ending October 11. While this seemingly optimistic trend was offset by layoff announcements from giants such as Amazon and UPS.
Although the consumer confidence index was slightly higher than expected, households were worried about future employment and price increases caused by tariffs, causing the US dollar index to fall slightly by 0.09% to 98.72 in late trading.
Subadra Rajappa, head of U.S. interest rate strategy at Societe Generale, said the Federal Reserve may favor the labor market over inflation, which should have injected vitality into gold, but trade optimism overwhelmed everything like a huge wave.
BMO Capital Markets strategist Vail Hartman warned that large-scale layoffs highlight the risk of rising unemployment, and a hiring slowdown is already a reality. The government shutdown, which has lasted nearly a month, has delayed the release of key economic data, and the Federal Reserve may rely on private sector data and corporate announcements, adding to the uncertainty surrounding the interest rate outlook. While gold should shine in an environment of rate cuts, it has been forced to retreat amidst a broader market record close.
The Federal Reserve is widely expected to cut interest rates by a quarter percentage point on Wednesday, its second rate cut this year, to prevent a further slowdown in the labor market. While the government shutdown has delayed the release of most official economic data, rising jobless claims suggest continued cooling in labor market demand.
Worries about tariff-driven price increases were temporarily relegated to the background after weaker-than-expected inflation data, including a 3% year-on-year increase in the consumer price index (CPI) in September. The Fed’s statement following last month’s rate cut referenced the “continued adjustment” of its policy rate, a move seen as foreshadowing future rate cuts.
The Fed is divided over the pace of rate cuts, with several policymakers urging caution amid concerns about renewed inflation, while others believe further rate cuts are needed to address the risk of a worsening job market. Newly elected governor Milan is likely to dissent this week.
The Trump administration's desire to lower interest rates has put immense political pressure on Federal Reserve Chairman Jerome Powell. Analysts expect Powell to refrain from pre-committing to a December rate cut at his press conference on Wednesday, leaving various options open to respond to trade negotiations and data fluctuations.
Markets are pricing in further rate cuts in December and January. The Fed may also signal an imminent halt to shrinking its balance sheet, ending quantitative tightening as early as this month.
The outlook for gold isn't overwhelmingly pessimistic, with analysts splitting into two camps. Optimists, represented by the London Bullion Market Association (LBMA), boldly predicted at its annual meeting that gold prices will soar to $4,980 per ounce over the next 12 months, up from the current price of nearly $1,000. This prediction is based on continued geopolitical risks and a surge in gold purchases by global central banks.
After all, the fundamentals behind gold's over 50% rally this year—the trade war and expectations of interest rate cuts—have faded somewhat but haven't completely vanished. Tariff adjustments and mining agreements pushed by the Trump administration could still trigger new frictions; if the Federal Reserve's easing path exceeds expectations, it could also reignite gold's momentum.
However, cautious voices are equally strong. Citigroup and Capital Economics both lowered their gold price forecasts on Monday, believing that if a trade agreement is reached, it will further hit safe-haven demand.
S&P 500 earnings grew 10.5% year-over-year in the third quarter, exceeding expectations. Corporate earnings momentum is strong. This week's financial reports from Apple, Microsoft, Alphabet, Amazon, and Meta will reveal details of AI spending. If they continue to outperform, the stock market bull market will attract more funds.
Although the US dollar fluctuated slightly, the double-edged sword effect of employment data and consumer confidence made it difficult for gold bulls to breathe.
Overall, gold prices may continue to be under pressure in the short term, and the low of $3,886 may not be the bottom line. Pay attention to the support near the 50% retracement level of the rise since August at 3,325 and the 55-day moving average at 3,753. However, in the medium and long term, if the Fed's interest rate cut cycle deepens or geopolitical events reignite, gold still has the potential to resume its upward trend. Pay attention to the resistance near the 4,000 mark in the short term.
(Spot gold daily chart, source: Yihuitong)
At 07:02 Beijing time, spot gold was trading at $3,939.11 per ounce.
Senior Chinese and American officials have finalized the framework of a potential trade agreement, and Trump and Chinese leaders are expected to meet in South Korea on Thursday, fueling market expectations of easing trade tensions. Wall Street's three major indices subsequently hit new all-time highs. The Dow Jones Industrial Average rose 0.34% to 47,706.37, the S&P 500 edged up 0.23% to 6,890.89, and the Nasdaq surged 0.8% to 23,827.49. Tech giants like Nvidia saw their shares surge 5%, pushing their market capitalization close to $5 trillion. Microsoft also saw a 2% intraday increase due to its restructuring agreement with OpenAI. Amid this optimism, demand for gold as a safe haven has significantly decreased.
Market attention will turn to the Federal Reserve's interest rate decision and Fed Chairman Powell's press conference on this trading day.
Core driver: Sino-US trade war glimmers, safe-haven demand evaporates
An in-depth analysis of the root causes of the recent drop in gold prices shows that the positive progress in Sino-US trade negotiations is undoubtedly the primary driving force.
Last weekend, senior Chinese and American economic officials reached a consensus on the outline of an agreement, the core of which includes the reduction of US tariffs on Chinese goods. Thursday's summit between the two leaders will be a key milestone.
Jim Wyckoff, senior analyst at Kitco Metals, put it bluntly: "The U.S.-China trade tensions have indeed eased, which is bad news for safe-haven metals."
Looking back at the crazy rise in gold prices this year - currently still exceeding 50%, mainly due to geopolitical conflicts, trade frictions and expectations of US interest rate cuts - now that the trade haze has dissipated, one of the support pillars of gold has collapsed in an instant.
Global market sentiment subsequently shifted towards risk appetite, with investors selling gold and moving into equities and technology stocks. Nvidia CEO Jensen Huang's announcement of a $500 billion order to build seven AI supercomputers for the U.S. Department of Energy further fueled market enthusiasm.
In Tokyo, Trump also praised Sanae Takaichi, Japan's first female prime minister, and signed an agreement to increase the supply of key minerals. While these geopolitical maneuvers did not directly target gold, they indirectly reinforced the narrative of a recovery in "risk assets," dimming gold's safe-haven image.
The prospect of the Fed's interest rate cut is good for gold, but it is difficult to resist the general trend
Meanwhile, investors are closely watching the Federal Reserve's two-day policy meeting, with the interest rate decision, which concludes on Wednesday, becoming a key market focus. The Fed is widely expected to cut rates by 25 basis points, with the CME FedWatch tool showing a probability of over 90% for another cut in December. In theory, a rate cut should be positive for gold, reducing holding costs and stimulating demand for non-yielding assets.
But the reality is far from simple. U.S. Treasury yields fell on Tuesday, with the 10-year yield falling 1.2 basis points to 3.981% and the two-year yield remaining flat at 3.496%. The yield curve showed a bullish flattening trend, which typically signals the start of a Federal Reserve easing cycle. However, the preliminary estimate of the ADP National Employment Report showed that U.S. private sector jobs increased by an average of 14,250 per week in the four weeks ending October 11. While this seemingly optimistic trend was offset by layoff announcements from giants such as Amazon and UPS.
Although the consumer confidence index was slightly higher than expected, households were worried about future employment and price increases caused by tariffs, causing the US dollar index to fall slightly by 0.09% to 98.72 in late trading.
Subadra Rajappa, head of U.S. interest rate strategy at Societe Generale, said the Federal Reserve may favor the labor market over inflation, which should have injected vitality into gold, but trade optimism overwhelmed everything like a huge wave.
BMO Capital Markets strategist Vail Hartman warned that large-scale layoffs highlight the risk of rising unemployment, and a hiring slowdown is already a reality. The government shutdown, which has lasted nearly a month, has delayed the release of key economic data, and the Federal Reserve may rely on private sector data and corporate announcements, adding to the uncertainty surrounding the interest rate outlook. While gold should shine in an environment of rate cuts, it has been forced to retreat amidst a broader market record close.
The Federal Reserve is widely expected to cut interest rates by a quarter percentage point on Wednesday, its second rate cut this year, to prevent a further slowdown in the labor market. While the government shutdown has delayed the release of most official economic data, rising jobless claims suggest continued cooling in labor market demand.
Worries about tariff-driven price increases were temporarily relegated to the background after weaker-than-expected inflation data, including a 3% year-on-year increase in the consumer price index (CPI) in September. The Fed’s statement following last month’s rate cut referenced the “continued adjustment” of its policy rate, a move seen as foreshadowing future rate cuts.
The Fed is divided over the pace of rate cuts, with several policymakers urging caution amid concerns about renewed inflation, while others believe further rate cuts are needed to address the risk of a worsening job market. Newly elected governor Milan is likely to dissent this week.
The Trump administration's desire to lower interest rates has put immense political pressure on Federal Reserve Chairman Jerome Powell. Analysts expect Powell to refrain from pre-committing to a December rate cut at his press conference on Wednesday, leaving various options open to respond to trade negotiations and data fluctuations.
Markets are pricing in further rate cuts in December and January. The Fed may also signal an imminent halt to shrinking its balance sheet, ending quantitative tightening as early as this month.
Divergent outlook: Bulls and bears are in a tug-of-war, where is the golden road?
The outlook for gold isn't overwhelmingly pessimistic, with analysts splitting into two camps. Optimists, represented by the London Bullion Market Association (LBMA), boldly predicted at its annual meeting that gold prices will soar to $4,980 per ounce over the next 12 months, up from the current price of nearly $1,000. This prediction is based on continued geopolitical risks and a surge in gold purchases by global central banks.
After all, the fundamentals behind gold's over 50% rally this year—the trade war and expectations of interest rate cuts—have faded somewhat but haven't completely vanished. Tariff adjustments and mining agreements pushed by the Trump administration could still trigger new frictions; if the Federal Reserve's easing path exceeds expectations, it could also reignite gold's momentum.
However, cautious voices are equally strong. Citigroup and Capital Economics both lowered their gold price forecasts on Monday, believing that if a trade agreement is reached, it will further hit safe-haven demand.
S&P 500 earnings grew 10.5% year-over-year in the third quarter, exceeding expectations. Corporate earnings momentum is strong. This week's financial reports from Apple, Microsoft, Alphabet, Amazon, and Meta will reveal details of AI spending. If they continue to outperform, the stock market bull market will attract more funds.
Although the US dollar fluctuated slightly, the double-edged sword effect of employment data and consumer confidence made it difficult for gold bulls to breathe.
Overall, gold prices may continue to be under pressure in the short term, and the low of $3,886 may not be the bottom line. Pay attention to the support near the 50% retracement level of the rise since August at 3,325 and the 55-day moving average at 3,753. However, in the medium and long term, if the Fed's interest rate cut cycle deepens or geopolitical events reignite, gold still has the potential to resume its upward trend. Pay attention to the resistance near the 4,000 mark in the short term.
(Spot gold daily chart, source: Yihuitong)
At 07:02 Beijing time, spot gold was trading at $3,939.11 per ounce.
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- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
