Precious Metals Drop As US-China Trade Deal Looms Large

 

Precious Metals Pull Back Amid U.S.-China Trade Talks

(Bullion News Network) – Gold prices pulled back on Monday, dropping by nearly $90/ozt to start the week. Silver lost to a lesser extent, sliding $0.08/ozt. The price action favored silver, which drove the gold-silver ratio below 100:1 for the first time since April 24th of this year. Today marked the third consecutive decline in the gold-silver ratio, which hit a month-to-date peak of 103.67 on May 7th. Platinum and palladium also lost to begin this trading week, with the precious metals sliding approximately $15/ozt and $22/ozt, respectively. The market-wide drop coincided with a surge on Wall Street that drove the Dow, S&P 500, and Nasdaq sharply higher. What’s behind the drop in precious metal prices and an increase in stock yields? A much-anticipated trade deal between the United States and China.

The two largest economies in the world have been involved in an economic conflict since U.S. President Donald Trump’s first term in 2018, when the leader unveiled a historic slate of tariffs on Chinese goods. After securing re-election last year, Trump doubled down on the U.S.-China trade war, eventually raising tariffs on Chinese imports to 145% earlier this year following a series of back-and-forth retaliatory escalations between the two nations. Given the reliance many American factories have on Chinese imports, economists believe that a sustained trade war between the U.S. and China could potentially be catastrophic for both economies. Today, the United States and China reached an agreement that would temporarily bring so-called reciprocal tariffs down to 10% for both countries. An additional 20% duty on Chinese imports relating to the U.S. fentanyl crisis will also remain in place. The tariff pause will last for ninety days, but American markets are hoping that this deal represents an easing of tensions between the two powerhouse economies.

News of the trade deal was well-received on Wall Street, driving the three largest stock indexes sharply higher. But for assets like gold and silver, an easing of tensions between the U.S. and China means a major blow to the safe haven demand that drove gold prices to all-time highs throughout the first few months of President Trump’s second term. CNN’s Fear and Greed Index believes markets slipped into “greed” territory last Friday for the first time since December of 2024. Safe haven demand, as measured by the difference in returns between stocks and bonds, remains elevated, although that figure is down from the year-long high markets saw on May 2nd. The spread between junk and investment-grade bonds has dropped to its lowest point in over a year, signaling that investors are taking more risks than usual. 

On deck this week are several economic data reports that could shed more light on the U.S. economic situation. Tuesday will see the release of the April Consumer Price Index (CPI), one of the core measures of inflation monitored by the Federal Reserve. The median forecast projects an increase of 0.3%, from -0.1% in March to 0.2% in April. Forecasters anticipate that the year-over-year CPI will remain unchanged at 2.4%, while the core CPI will jump 0.2% from 0.1% in March to 0.3% last month. Following speeches from Federal Reserve Bank officials on Wednesday, investors will have access to a wide range of new data reports on Thursday. These reports include initial jobless claims, U.S. retail sales, and the Producer Price Index (PPI). Forecasters expect the PPI to increase by 0.7%, up to 0.3% from last month’s reading of -0.4%. Friday’s most notable report is the preliminary consumer sentiment reading for May. After a series of troubling readings, analysts expect a moderate bump from 52.2 last month to 53.5 in May. 

Also playing into a drop in safe haven demand is the latest series of peace talks between India and Pakistan. Last week, India conducted military strikes on several Pakistan and Pakistan-administered Kashmir targets, leaving around 30 dead. Pakistan also reportedly shot down several Indian drones and military jets. The attack, which occurred in response to a terrorist attack in India last month, led to fears that the escalation would lead to a larger regional conflict. Such an escalation could potentially pull China, one of three states that administer parts of Kashmir, into the fray. India and Pakistan agreed to a ceasefire over the weekend, and the pause to fighting appears to have continued on Monday. Safe haven assets like gold typically spike in demand during periods of increased geopolitical tensions and conflict.

Gold is set to start the week down nearly $90/ozt since Friday and nearly $200 since May 7th. Silver will close the trading day Monday down just $0.8, with losses totaling $0.53/ozt since last Tuesday. The gold-silver ratio is down again and has declined for three consecutive trading days.