Gold's Retreat Reflects Easing Trade Tensions, but Risks Remain

The price of gold has retreated to near $3,315 per ounce in May 2025—a sharp decline from April’s record high of $3,500.05—as tentative signs of de-escalation in U.S.-China trade tensions have diminished the metal’s appeal as a safe haven. While the retreat reflects reduced geopolitical anxiety, lingering uncertainties over trade policy, Fed rate decisions, and inflation dynamics ensure gold remains a volatile asset.

Trade Talks: Signals of De-escalation Amid Stalemate

The U.S. and China remain locked in a tariff war, with reciprocal duties at 145% and 125%, respectively. Yet both sides have quietly softened their stances: China eased tariffs on U.S. ethane and semiconductors, while the U.S. granted a two-year exemption for auto parts imports to avert domestic supply chain disruptions. .

Despite these moves, official trade talks remain on hold. U.S. Trade Representative Jamieson Greer clarified there are “no negotiations yet,” contradicting President Trump’s claims of active dialogue. Beijing insists the U.S. must first remove all unilateral tariffs to begin talks—a condition the White House has not met. This ambiguity leaves markets wary of premature optimism.

Gold’s Technical and Market Dynamics: A Fragile Rally

The gold sell-off is rooted in both technical and macroeconomic factors. Key support levels—such as the $3,265 Fibonacci zone—have held, but traders await a decisive breakout above $3,328 to signal a rebound. Meanwhile, the U.S. dollar’s strength, driven by Federal Reserve rate-hike expectations, has amplified gold’s downward pressure.

The dollar’s ascent, fueled by resilient labor market data and the Fed’s hawkish undertones, has eroded gold’s safe-haven demand. Yet weak economic indicators—such as a Q1 GDP growth forecast of just 0.4%—suggest the Fed may pivot to cuts by year-end, potentially reviving gold’s allure.

Economic Data and Fed Policy: A Double-Edged Sword

Investors are parsing mixed signals from the U.S. economy. While job openings fell to a five-year low of 7.19 million, core inflation (measured by the PCE Price Index) dipped to 0.1% in March, hinting at cooling price pressures. These data points bolster arguments for Fed rate cuts, with markets pricing in 84 basis points of easing by late 2025.

However, the Fed faces a dilemma: tariffs on Chinese goods continue to raise import costs, complicating inflation forecasts. A prolonged stalemate could force the Fed to balance trade-driven inflation with weak growth—a calculus that could keep gold volatile.

The Balancing Act: ETFs vs. Physical Demand

Gold-backed ETFs have been a steady source of support, with 227 tons added in Q1 2025—the highest inflows since 2022. Yet physical demand, particularly in India, faces headwinds as jewelry purchases are projected to drop 11% in fiscal 2026. This divergence underscores gold’s dual identity: a macro-driven investment tool and a cultural commodity.

Conclusion: Gold’s Crossroads

Gold’s retreat to $3,315 reflects reduced near-term geopolitical risks, but its long-term trajectory hinges on unresolved trade tensions and Fed policy. Key support at $3,265 remains critical; a breach could trigger further declines. Conversely, a Fed pivot or renewed trade disputes could propel gold toward $3,500 again.

With $84 billion in ETF inflows and a Fed increasingly data-dependent, investors must weigh the odds of a durable U.S.-China détente against the likelihood of a recession-driven flight to safety. For now, gold’s retreat is a pause—not an end—to its story.

The data suggests a fragile equilibrium. Until trade talks materialize or the Fed signals clarity, gold’s next move will remain tied to the ebb and flow of global risk appetites.