Gold prices extend drop as easing US-China tensions curb haven demand

Gold (GC=F)

Gold prices dropped in early European trading after experiencing their first weekly decline since mid-August, as growing optimism surrounding a potential US-China trade deal reduced the demand for safe-haven assets.

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Gold futures dropped 1.5% to $4,078.10 per ounce, while spot gold retreated 1.2% to $4,066 an ounce, at the time of writing.

It came as the US and China signalled they were nearing the completion of a comprehensive trade agreement, with president Donald Trump currently on a diplomatic tour of Asia. Should an agreement be reached, it could ease some of the economic risks and geopolitical tensions that have previously supported the price of gold.

"This potential trade deal between the US and China really came out of the blue and has been a positive surprise for the markets broadly," said Kyle Rodda, an analyst at Capital.com. "Obviously, the flip side of that is the developments have been negative for gold."

Rodda added that the market's mood had shifted, with much of the tension that had previously driven gold prices higher now dissipating. "A lot of the heat has come out of the market now, and sentiment is neutralising."

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Despite the recent pullback, gold's long-term outlook remains underpinned by expectations of loose fiscal and monetary policies. "Should that remain the case, gold's uptrend should hold," Rodda concluded.

A sharp rally that saw gold surge to a record high just above $4,380 an ounce last Monday has since reversed amid signs that the metal had become overbought. Despite this, bullion remains up 55% year-to-date.

Oil (BZ=F, CL=F)

Oil prices were in the red on Monday morning, having earlier risen during Asian trading as signs of progress towards a US-China trade deal eased concerns that tariff disputes and export restrictions between the world’s two largest oil consumers could slow global economic growth.

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Brent crude futures were flat at $65.21 a barrel at the time of writing, while West Texas Intermediate futures held steady at $61.48.

In a client note, Haitong Securities said market sentiment had improved following the introduction of new sanctions on Russia and a thaw in US-China tensions, developments that helped offset worries about crude oversupply, which had driven prices lower earlier in October.

US Treasury secretary Scott Bessent said on Sunday that American and Chinese officials had agreed on a “very substantial framework” for a trade deal, paving the way for discussions between Trump and president Xi Jinping later this week.

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Read more: FTSE 100 LIVE: London muted as Asian markets hit record highs amid easing US-China trade tensions

Bessent said the framework would avert the imposition of 100% US tariffs on Chinese goods and defer China’s planned rare-earth export controls.

Trump expressed optimism about reaching an agreement, noting that he expected to meet Chinese officials both in Beijing and the United States. “I think we’re going to have a deal with China,” he said. “We’re going to meet them later in China and we’re going to meet them in the US, either Washington or Mar-a-Lago.”

The easing of trade tensions between the two economic superpowers is widely viewed as supportive of global growth. However, analysts cautioned that continued production increases from OPEC+, including potential additional output from Kuwait, could still weigh on prices if supply begins to outpace demand.

Pound (GBPUSD=X, GBPEUR=X)

Sterling pushed higher against its major peers on Monday morning after a string of upbeat data the previous week.

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The pound was 0.2% higher against the dollar, trading at $1.3329, and up 0.1% versus the euro, at $1.1454.

Sterling is still riding a wave of optimism after robust retail sales and PMI figures helped ease speculation that the Bank of England (BoE) could move to cut interest rates in December.

The US dollar index (DX-Y.NYB), which tracks the greenback against a basket of six major currencies, was steady at 98.90.

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In equities, the FTSE 100 (^FTSE) was up 0.1% on Monday morning, trading at 9,653 points. For more details on market movements, check our live coverage here.

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