Gold Falls as Trade Tensions Soften, US Data on Tap

Recent weeks have seen a dramatic shift in the gold market, with prices retreating from April’s record high of $3,500.05 per ounce as trade tensions between the U.S. and China eased, albeit temporarily. Yet, investors remain on edge as the upcoming U.S. economic data releases in May could reignite demand for the precious metal.

Trade Tensions: The Catalyst for Volatility

Gold’s surge to $3,500 in mid-April was fueled by escalating U.S.-China trade disputes, including record-high tariffs and export controls. The White House’s “Liberation Day” policy, which hiked tariffs on Chinese goods to 145%, and Beijing’s retaliatory 125% tariffs on U.S. imports, created a climate of uncertainty that drove investors to gold as a safe haven.

However, optimism emerged as the U.S. softened auto tariffs and inked its first trade deal with a foreign partner. China also exempted some U.S. goods from retaliatory duties, easing near-term pressures. This led to a gold price correction to around $3,315 per ounce by late April.

Inflation and Safe-Haven Demand: Gold’s Dual Drivers

Despite the temporary trade truce, gold’s long-term prospects remain bright. Analysts at J.P. Morgan predict it could average $3,675 by late 2025 and reach $4,000 by mid-2026, citing inflation risks and diminished faith in U.S. assets. Tariffs have already damaged business confidence, with U.S. consumer confidence hitting a five-year low, and central banks are accelerating gold purchases to diversify reserves away from the dollar.

May’s U.S. Data: A Crucible for Gold’s Next Move

The coming month will test gold’s resilience as critical economic indicators are released. Key reports include:
- May 10: Consumer Price Index (CPI): Inflation trends will shape Fed policy expectations. A hotter-than-expected CPI could revive inflation fears, boosting gold.
- May 30: First-Qtr GDP and Personal Income/PCE Deflator: Weak GDP or rising PCE inflation (the Fed’s preferred gauge) may pressure the dollar and favor gold.
- May 4: Employment Situation Report: Strong job growth could signal economic resilience, while weak data might reignite recession fears and safe-haven buying.

Emerging markets’ central banks are already buying gold aggressively. For instance, Russia and India added over 100 tons to their reserves in Q1 2025, signaling a structural shift in demand.

Conclusion: Gold’s Bull Run Isn’t Over

While trade tensions have temporarily eased, the U.S.-China conflict remains unresolved, and inflation risks persist. With May’s data likely to highlight economic vulnerabilities, gold’s safe-haven appeal and inflation hedge remain intact.

J.P. Morgan’s $4,000 forecast hinges on two scenarios:
1. Trade Escalation: If tariffs rise further, gold could hit $3,800 by year-end.
2. Inflation Persistence: A Fed pivot to rate cuts in 2026 would weaken the dollar and push gold toward $4,000.

Investors should monitor the May 30 GDP report closely. A contraction or elevated PCE inflation would validate gold’s rally, while strong data might trigger a short-term pullback. For now, gold’s fundamentals—geopolitical risks, central bank demand, and inflation—support a bullish outlook.

In sum, gold’s dip is a buying opportunity. As trade talks waver and U.S. data tests economic resilience, the metal’s role as a hedge against uncertainty ensures its luster endures.