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Gold sinks most in a year as trade truce deals blow to bulls
[SINGAPORE] Gold tumbled back below US$1,400 an ounce after the US and China reached a truce in their trade war, dealing a blow to havens.
Prices fell the most in a year after Presidents Donald Trump and Xi Jinping agreed to resume negotiations in a bid to resolve differences between the world's two biggest economies. Still, the setback may be temporary as investors now train their focus on US jobs data due Friday for clues on the Federal Reserve's next move on policy.
"Gold was well overdue a period of consolidation and gold bulls should welcome it," said Ross Norman, chief executive officer of gold brokerage Sharps Pixley Ltd. "This provides a welcome entry point."
Bullion hit a six-year high last week as top central banks including the US Federal Reserve adopted a more dovish tone and tensions spiked between the US and Iran. Driven by speculation that US interest rates may soon be headed lower, investors plowed into bullion-backed exchange-traded funds, which swelled 5 per cent in June, the most since 2016.
Gold futures dropped 1.7 per cent on the Comex in New York, the biggest decline in over a year, to settle at US$1,389.30 at 1:32pm. Prices rallied 7.8 per cent last month. A gauge of the US dollar rose 0.5 per cent on Monday after sagging 1.6 per cent in June.
Gold's pull-back was a natural reaction to the dollar-friendly news, said David Govett, head of precious metals trading at Marex Spectron Group in London. "I don't think we collapse from here, but I do think we have seen the highs now."
After meeting Mr Xi, Mr Trump said he would hold off imposing additional tariffs on Chinese imports and delay restrictions against Huawei Technologies Co, letting US companies resume sales to China's largest telecommunications equipment maker. Further details on the deal were light though.
With China-US trade tensions temporarily out of the way, gold traders' focus is back toward fundamentals, and "fundamentals are still reasonably ok," Wei Li, head of iShares EMEA investment strategy at BlackRock, told Bloomberg Television.
"We do not expect gold to fall significantly further," Commerzbank analysts said in a Monday note to clients. "In our view, it is above all the upcoming ECB and Fed rate cuts, and the (geo)political risks, that argue against any pronounced and lasting price slide."
Still, prices were seen remaining under pressure on Monday on improved risk sentiment, with the downside seen at US$1,380 and further declines dependent on the dollar strengthening more, Mumbai-based Kotak Securities Ltd. said in a note.
In other precious metals, silver fell on the Comex, while platinum declined on the New York Mercantile Exchange and palladium gained.