Gold prices saw a significant decline last week, retreating from record highs, as easing trade tensions between the United States and China led to a rebound in global stock markets. The precious metal, typically a safe-haven asset, lost its appeal as investors shifted focus toward riskier assets amidst the improving trade outlook. Gold futures and spot prices dropped by approximately 6.5%, pulling back from their all-time highs.
Shift in Market Sentiment Drives Gold Price Decline
The decline in gold prices came after former President Donald Trump softened his stance on tariffs against China, signaling potential resolution in the ongoing trade dispute. As US-China relations showed signs of improvement, investor fears of a global trade war receded, and the demand for gold, which typically rises in times of economic uncertainty, diminished.
According to analysts at Barclays, the gold rally that had fueled prices to unprecedented levels had outpaced fundamental factors and was becoming technically overstretched. The price pullback indicates that the precious metal may have been overbought in recent months, leading to a correction.
Hedge Funds and Investors Scale Back Gold Positions
The pullback in gold prices has also been reflected in the actions of hedge funds and institutional investors. Data from Bloomberg revealed that hedge funds have reduced their net long positions in gold to their lowest level in over a year. Michael Brown, a market analyst from Pepperstone, noted that weaker holders are now exiting their positions, particularly as interest in buying gold from Asian markets starts to wane.
The retreat in gold prices has raised concerns among some investors who had previously seen the precious metal as a hedge against economic instability and inflation. However, the softening of trade tensions and improved risk sentiment have led many to reassess their safe-haven strategies.
European Demand and Currency Fluctuations Fuelled Earlier Surge
The surge in gold prices earlier this year was driven by a combination of factors, including geopolitical uncertainty surrounding Trump’s tariff policies and a weaker US dollar. Gold, which is often seen as a store of value during times of crisis, saw a remarkable gain of over 25% in 2025, with European demand playing a significant role in this rise.
The strength of the euro against the dollar was another key factor in gold’s appreciation. As the US dollar weakened, the euro appreciated by 11%, making gold more attractive to European investors. The World Gold Council reported that European investors purchased a record $1 billion (€0.88 billion) in gold ETFs in March alone, positioning Europe as the second-largest market for gold after North America.
Short-Term Outlook: A More Cautious Perspective
Looking ahead, analysts are adopting a more cautious outlook on gold. While long-term prospects for the precious metal remain positive due to ongoing global uncertainties, the near-term outlook is less optimistic. The shift in market sentiment, driven by the easing of trade tensions, has led to renewed interest in equities and other risk assets, which could weigh on gold’s performance.
Technical indicators also suggest that gold may have been overbought during its recent rally, prompting some investors to take profits and increase short positions. Additionally, a slowdown in central bank buying and reduced individual investor interest could further dampen gold’s upward momentum.
Another risk factor is the potential for tighter monetary policies and government spending restrictions, which could lead to reduced liquidity in financial markets—typically a driving force behind gold’s price increases.
Continued Appeal as a Safe-Haven Asset
Despite the short-term challenges, Michael Brown from Pepperstone emphasized that gold remains one of the strongest safe-haven assets available. Global uncertainties, including geopolitical tensions and economic volatility, still support the long-term bullish case for gold. However, investors may need to remain vigilant, as the market adjusts to shifting dynamics in trade and economic conditions.
Gold’s retreat in price serves as a reminder of the complex interplay between global trade relations, currency fluctuations, and investor sentiment. As the situation evolves, the precious metal may continue to see price corrections, but its long-term status as a hedge against risk remains intact.