Gold prices fall below $4,000 amid hopes of US-China trade truce

Gold (GC=F)

Gold prices extended losses from previous sessions on Tuesday morning, as hopes of easing trade tensions between the US and China dampened the appeal of holding the precious metal as a safe-haven asset.

Gold futures (GC=F) dropped 2.2% to $3,931.80 per ounce at the time of writing, while spot gold was down 1.7% at $3.915.21 an ounce.

US president Donald Trump signalled on Monday that he expected a positive outcome from his meeting with China's president Xi Jinping, which is scheduled to take place in South Korea on Thursday.

"I've got a lot of respect for President Xi and I think we're going to come away with a deal," Trump told reporters on Air Force One en route to Japan from Malaysia.

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Investor optimism also fuelled a rally in tech stocks on Monday, which saw US markets reach fresh highs, ahead of earnings from five of the "Magnificent 7" this week.

The shift back into risk-on mode in markets has dented the appeal of gold, which is considered to act as a safe haven in times of uncertainty.

In a note on Monday, Capital Economics chief markets economist John Higgins said: "We doubt the recent pull-back in the price of gold will be unwound."

He said that Capital Economics now forecast that the gold price would fall to $3,500 per ounce by the end of 2026.

Higgins said that Capital Economics had suggested last week that the gold "might be in a bubble that would burst before long".

"That’s because it was very difficult to justify how high its price had risen in real terms – to circa 60% above its prior peak in 1980 – even allowing for the well-documented explanations for its rally," he said.

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Oil (BZ=F, CL=F)

Despite hopes of a US-China trade truce, oil prices headed lower on Tuesday morning, over persistent concerns about oversupply in the market.

Brent crude (BZ=F) futures fell 1.6% to $63.85 per barrel at the time of writing, while West Texas Intermediate futures (CL=F) declined 1.7% to $60.27 a barrel.

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Derren Nathan, head of equity research at Hargreaves Lansdown, said: "Trade and [interest] rate optimism should provide a healthy backdrop for demand expectations but its supply that continues to drive the narrative.

"OPEC+ leaders are meeting again this Sunday with reports suggesting another output rise is being tabled for December."

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Pound (GBPUSD=X, GBPEUR=X)

The pound dipped 0.2% against the dollar (GBPUSD=X) on Tuesday morning, to trade at $1.3303 at the time of writing, as investors weighed trade developments and looked ahead to interest rate decisions.

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The US Federal Reserve is expected to cut interest rates by 0.25% on Wednesday, which would lower its policy rate to a range of 3.75% to 4%.

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Hargreaves Lansdown's Nathan said that "markets are all-but-certain of a quarter point cut by the Federal Reserve Bank tomorrow, and confidence in another similar cut in December is high".

Meanwhile, the European Central Bank (ECB) is expected to keep its interest rate on hold at 2%, when announcing its latest decision on Thursday.

Felix Feather, economist at Aberdeen, said: "With the rate decision all-but a done deal, attention will turn to the framing of the decision, in particular any hints around where policy might go next.

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"Markets pricing suggests the ECB will be on hold at 2% for the foreseeable, and we agree," he said. "Lagarde will probably describe policy as 'in a good place' to hint that the General Council also does not see a pressing case to change policy settings."

The pound was down 0.3% against the euro (GBPEUR=X) on Tuesday morning, trading at €1.1415.

More broadly, the FTSE 100 (^FTSE) was little changed in early European, trading at 9,656 points. For more details on market movements check our live coverage here.

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