Gold Slumps on US-China Trade Relief, But Risks Remain

The price of gold fell sharply in early April 2025 as easing U.S.-China trade tensions temporarily reduced demand for the traditional safe-haven asset. Spot gold dropped 1.7% to $3,290.43 per ounce, while U.S. gold futures slipped to $3,299.00, marking a 2% weekly decline. The retreat came as reports suggested China was preparing to exempt some U.S. imports from retaliatory tariffs—a move that signaled a potential de-escalation in the trade war. Yet beneath the surface, a complex interplay of factors—from central bank demand to recession fears—kept gold’s long-term outlook uncertain.

The Trade Tensions Pivot

The immediate catalyst for gold’s decline was the news that China had begun asking businesses to identify U.S. goods eligible for tariff exemptions. This followed weeks of speculation about direct talks between Washington and Beijing, with U.S. President Donald Trump hinting at progress. The developments alleviated concerns over a full-scale trade war, reducing investor demand for gold as a hedge against instability. Analysts noted that this “apparent detente” had already pushed prices below $3,300, with JPMorgan’s Yuxuan Tang observing that partial tariff exemptions were sufficient to “cool the gold rush.”

However, the narrative was far from settled. China denied the existence of ongoing “direct talks,” casting doubt on the durability of any truce. Meanwhile, the International Monetary Fund (IMF) and World Bank Spring Meetings highlighted broader skepticism toward U.S. trade policies, with participants questioning the coherence of tariffs amid shifting demands. This ambiguity underscored the fragility of the calm.

Dollar Strength Adds Pressure

The U.S. dollar’s resurgence played a critical role in gold’s decline. The dollar index rose 0.2% against a basket of currencies, marking its first weekly gain since March. This strengthened greenback made gold costlier for international buyers, compounding the pressure. A comparison would reveal the inverse relationship: as the dollar climbed, gold prices fell in tandem.

Yet the dollar’s rally was itself tied to broader economic signals. Investors awaited key U.S. data—including Q1 GDP and April nonfarm payrolls—to gauge the Fed’s policy path. A stronger economy could support the dollar further, but risks of a slowdown lingered. The IMF had recently warned of a potential U.S. recession, a concern that kept gold’s safe-haven allure intact despite the trade relief.

The Bulls Beneath the Surface

While short-term dynamics pushed gold lower, long-term fundamentals remained robust. Year-to-date, gold had still risen over 25%, driven by central bank purchases and earlier trade war fears. Emerging-market central banks, including China, India, and Turkey, added 1,136 tonnes of gold in 2022—the highest annual tally on record—valued at $70 billion. These institutions view gold as a hedge against currency risks and geopolitical instability, a trend likely to persist regardless of near-term trade developments.

Physical markets also reflected divergent demand. In India, gold discounts hit a near-nine-year high as high prices deterred buyers, while Chinese premiums rose to over a year’s peak, signaling sustained demand in the world’s largest consumer. This geographic split highlights how regional economic conditions can influence gold’s price trajectory.

Conclusion: A Volatile Equilibrium

Gold’s April 2025 slump illustrates the precarious balance between geopolitical hope and economic reality. While trade talks eased immediate fears, central bank demand and recession risks ensure gold retains its appeal as a crisis hedge. The 25% year-to-date gain underscores investor willingness to “buy the dip,” even as short-term optimism tempers prices.

Crucially, the data points to a market where no single factor dominates. The $3,500 record high hit on April 22—a product of trade war fears—and the subsequent retreat show how quickly sentiment can shift. With the IMF warning of a U.S. slowdown and China’s tariff exemptions still uncertain, gold’s volatility is likely to persist.

For investors, the takeaway is clear: gold remains a critical diversification tool, even in periods of apparent calm. The 1,136-tonne central bank purchases and persistent geopolitical risks suggest that while dips may occur, gold’s long-term trajectory is still upward—provided the world remains a risky place, which it almost certainly will.