Gold prices drop as US-China trade optimism reduces haven demand

Monday 27 October 2025 - 10:20

By: Dakir Madiha

Gold prices drop as US-China trade optimism reduces haven demand

Gold prices fell on Monday as optimism surrounding critical trade negotiations between the United States and China dampened demand for the safe-haven metal. Both nations signaled progress in resolving their prolonged trade conflict, easing market tensions.

Spot gold declined by 1.3% to $4,060.80 per ounce, while US gold futures dropped 1.6% to $4,072.60. Last week, gold ended a nine-week rally after reaching record highs above $4,300 per ounce, driven by geopolitical concerns. Traders took profits following the metal’s sustained surge.

US and China reach trade framework ahead of key summit

The price dip followed an announcement by US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng, who revealed they had reached what Bessent described as a “substantial framework” during talks over the weekend in Malaysia. Their discussions aim to set the stage for US President Donald Trump and Chinese President Xi Jinping to finalize a trade agreement during their meeting in South Korea on Thursday.

“I believe we have achieved a substantial framework for both leaders to discuss during their meeting in Korea next week,” Bessent told ABC News. The framework seeks to avert 100% tariffs on Chinese goods, which Trump had threatened to implement on November 1.

The agreement includes China’s pledge to delay proposed export controls on rare earth minerals for one year while conducting a review. These materials, critical to global electronics production, are dominated by China, which controls about 90% of the world’s supply. Additionally, the deal involves significant Chinese purchases of US agricultural products, particularly soybeans.

Fed rate cut expected as haven demand weakens

Although trade optimism weighed heavily on gold, losses were tempered by expectations of an interest rate cut by the Federal Reserve. The Fed is widely anticipated to lower its benchmark rate by 25 basis points to a range of 3.75% to 4% at the conclusion of its policy meeting on Wednesday.

Lower interest rates typically support gold by reducing the opportunity cost of holding non-yielding assets and weakening the US dollar. However, the dollar’s recent strength and easing trade tensions have overshadowed the Fed’s short-term policy moves.

Gold prices remain up approximately 55% year-to-date, bolstered by central bank purchases and what analysts term the "depreciation trade," where investors shift away from sovereign debt and currencies to hedge against rising fiscal deficits. Central banks are projected to purchase around 900 tons of gold in 2025, marking the fourth consecutive year of above-average acquisitions.