Gold Stays Resilient Amid Fragile US-China Truce and Fading Rate Cut Hopes

Gerik

Summary:

Gold remains above $4,000 per ounce following a sharp rebound, as traders digest the implications of the US-China trade truce and recalibrate expectations around Federal Reserve rate cuts....

Gold's Stability Reflects Investor Anxiety Despite Diplomatic Pause

Gold prices held firm above the $4,000 threshold on Friday, maintaining the momentum from a 2.4% surge in the previous session. This rebound, which broke a four-day losing streak, coincided with the announcement of a temporary truce between the United States and China.

However, the agreement failed to alleviate underlying concerns about the enduring economic rivalry between the two powers. Instead of signaling long-term stability, the truce appears to serve as a short-term diplomatic pause that allows both nations to recalibrate their strategic positions rather than resolve their broader structural tensions.

Investor Sentiment and Risk Appetite Support Precious Metals

The market reaction suggests that investors remain cautious despite the surface-level optimism. Chief market analyst Nick Twidale from AT Global Markets noted that the revival of uncertainty following the truce is encouraging dip buyers to re-enter the gold market. This sentiment is strengthened by gold’s steep correction of nearly 10% since its recent peak above $4,380 per ounce on October 20, indicating that the downside may have been exhausted.

Although bullion remains down over 2% for the week and is poised for its second consecutive weekly loss, the renewed appetite among risk-averse investors suggests strong underlying demand for safe-haven assets. This is further evidenced by the market's response to the Federal Reserve's cautious stance. Chair Jerome Powell’s recent comments signaled that investors should temper expectations for a December rate cut, contributing to a broader sell-off in Treasuries and reinforcing gold’s appeal as an alternative store of value.

Structural Factors Underpin Long-Term Gold Demand

Beyond short-term price movements, the structural demand for gold remains solid. According to the World Gold Council, central banks ramped up their gold purchases by 28% in the third quarter compared to the previous one, reversing a declining trend seen earlier in the year. This surge highlights a growing preference among global monetary authorities for diversifying reserves amidst geopolitical volatility and a shifting monetary landscape.

However, not all indicators were bullish. Gold-backed exchange-traded funds (ETFs) experienced consistent outflows, with holdings falling for six consecutive days, the longest streak since April. These withdrawals reflect a recalibration of investor positioning, influenced by changing interest rate forecasts and the stronger US dollar, which had gained 0.4% the previous session before dipping slightly by 0.1%.

Comparative Performance of Precious Metals and Broader Market Outlook

As of 9:55 a.m. in Singapore, spot gold stood at $4,016.21 per ounce, marking a marginal 0.2% decline. Silver extended its recent gains with a 0.4% rise, while platinum and palladium also showed upward momentum. These movements suggest broader support for precious metals amidst macroeconomic uncertainties.

Although the US-China diplomatic development brought a temporary sense of relief, the absence of a deeper resolution has only reinforced gold's role as a hedge against geopolitical instability. Meanwhile, evolving Fed policy expectations and fluctuations in investor risk sentiment continue to influence short-term price dynamics. Whether gold can sustain its current levels or break higher may depend less on diplomatic gestures and more on concrete economic shifts in interest rates, inflation trajectories, and reserve management by major central banks.

Source: Bloomberg

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