Gold Rebounds on Dip Buying; US-China Trade Talks in Focus

Gold prices have staged a modest rebound in early May 2025, driven by strategic dip buying amid ongoing geopolitical uncertainty and fragile progress in U.S.-China trade negotiations. The precious metal’s resilience highlights its dual role as both a safe-haven asset and a barometer of macroeconomic risks.

Gold’s Technical Rally: Dip Buyers Steer the Short-Term Trend

Spot gold rose to $3,380/ounce by May 7, 2025, before consolidating near $3,316/ounce on May 8, as traders balanced optimism around U.S.-China talks with lingering trade-related risks. Domestic Indian markets mirrored this volatility:
- May 8: Gold opened lower at ₹97,250/10g due to the Federal Reserve’s decision to hold rates steady.
- May 9: Prices dipped further to ₹96,700/10g amid weak local demand, yet held above key support at ₹96,000/10g.

Analysts note that “buying the dip” remains a dominant strategy, with institutional investors accumulating positions below $3,400/ounce. This technical support, coupled with geopolitical tensions—such as India-Pakistan military posturing and Israel-Gaza violence—has limited downside.

US-China Trade Talks: Stalemate or Turning Point?

The U.S.-China trade negotiations in Geneva (May 8–9) underscored the complexity of resolving their $600 billion trade war. Key developments include:
1. Tariff Levels: U.S. tariffs on Chinese goods remain at 145%, while China retaliates with 125% duties. Analysts estimate these punitive rates could reduce bilateral trade by 80% by late 2025.
2. Economic Toll:
- The U.S. economy contracted in Q1 2025 due to pre-tariff stockpiling.
- China’s factory activity hit a 16-month low, with Goldman Sachs warning of 16 million jobs at risk in export sectors.
3. Negotiation Stance:
- U.S. Treasury Secretary Scott Bessent emphasized “de-escalation,” while President Trump hinted at lowering tariffs “in coming weeks.”
- China demanded concessions before substantive talks, though its central bank injected $139 billion into markets to stabilize growth.

The talks ended without immediate breakthroughs but revealed a shared urgency to avoid deeper economic damage. A phased tariff reduction—such as trimming U.S. rates to 45% by year-end—could ease pressure, but systemic distrust over trade policies and technology dominance remains unresolved.

Federal Reserve Policy: The Elephant in the Room

The Federal Reserve’s decision to maintain its benchmark rate at 4.25%–4.5% in early May 2025 has dented gold’s appeal in the short term.

• Impact on Gold: Higher rates boost the U.S. dollar, which fell 0.5% in May 2025, and reduce the opportunity cost of holding non-yielding assets like gold.
• Inflation Risks: Fed Chair Powell warned that trade-driven inflation and unemployment risks could delay rate cuts, which markets had priced at 80 basis points by year-end.

While a prolonged high-rate environment could cap gold’s upside, its safe-haven role remains intact. Analysts at Tastylive note that “even a 50-basis-point cut by year-end would still leave rates elevated by historical standards, keeping gold in a $3,200–$3,500 range.”

Technical Outlook: Key Levels and Long-Term Momentum

• Near-Term Resistance: $3,434/ounce (May high). A breach could test $3,500/ounce.
• Support: $3,358/ounce (May low). A break below risks a drop to $3,250/ounce.
• Long-Term Trend: Gold has surged 30% year-to-date, outperforming inflation by 2–4% annually since 1995. Central banks and retail investors—particularly in Asia—have driven this rise, with Indian purchases alone accounting for 12% of global demand in Q1 2025.

Conclusion: Gold’s Resilience Amid Geopolitical Crosswinds

Gold’s rebound in early May 2025 underscores its role as a critical hedge against unresolved trade tensions and monetary policy uncertainty. While U.S.-China talks and Fed decisions create near-term volatility, the metal’s fundamentals remain robust:

1. Geopolitical Risks: Ongoing conflicts in South Asia and the Middle East, coupled with China’s fragile growth, ensure safe-haven demand stays elevated.
2. Central Bank Buying: Global central banks added 260 tons of gold to reserves in 2024, with purchases accelerating in 2025.
3. Technical Strength: Gold’s 15-year compound annual growth rate (CAGR) of 15% supports its long-term bullish case.

Investors should consider:
- Short-Term Strategy: Use dips below $3,350/ounce as buying opportunities, with stops below $3,300.
- Long-Term Positioning: Maintain 5–10% allocations to gold ETFs (e.g., GLD) or physical bullion, given its diversification benefits.

As the saying goes, “Gold doesn’t fall from the sky—it digs itself out of the ground.” With trade wars and central bank experiments dominating the global economy, this metal’s resilience is no coincidence.

Data sources: Federal Reserve, World Bank, Metals Focus, and Reuters.