Gold prices decline as trade tensions ease
Gold prices experienced a slight retreat last week, decreasing in major markets as indications of reducing trade tensions between the US and China became apparent. The initial thaw in the tariff conflict—initiated by former President Trump’s policy change in April 2025—has led to a reassessment of safe haven demand, with bullion losing some of its recent strength.
On the Multi Commodity Exchange (MCX) in India, gold futures fell by 0.74% on Friday, reflecting a decrease of ₹689 per 10 grams. This shift illustrates a broader change in sentiment as investors moderate their positions amid speculation that geopolitical risks may begin to subside.
Similarly, the gold rates in the US-based Comex market also declined, consistent with global trends. The retreat in prices is viewed as a direct reaction to the accelerating de-escalation narrative, prompting traders to reevaluate the risk premiums that had previously been factored into the metal’s pricing.
For Australian commodity investors, the gold pullback signals an important message: the market is starting to factor in a reduced likelihood of extended trade disruptions. This may lead to heightened volatility in the short term as positions are adjusted and hedging strategies are restructured.
Although the long-term fundamentals for gold remain sound—particularly in an environment characterized by ongoing inflation and central bank diversification—the short-term direction is now being influenced by geopolitical events rather than macroeconomic indicators alone.
Response to tariff resolution in the market
Investor outlook across global commodities significantly changed following the announcement of initial agreements between Washington and Beijing to reduce specific tariffs. Markets interpreted this development as a concrete step towards stabilizing international trade channels, prompting a shift away from traditional safe haven assets like gold and towards risk-oriented instruments such as equities and industrial metals.
In the futures market, open interest in gold contracts decreased across both Comex and MCX, indicating a reduction in speculative long positions. This repositioning was particularly evident among hedge funds and portfolio managers, who had previously elevated their investments in gold as protection against geopolitical instability. The CFTC’s Commitment of Traders report revealed a 3.2% decline in net long positions for the week ending May 16, highlighting the changing risk appetite.
For Australian institutional investors, this rebalancing introduces both hurdles and prospects. With the AUD maintaining relative strength against the USD—supported by improved global trade sentiment—imported gold is becoming slightly less expensive, which could influence local pricing structures. Concurrently, decreased volatility in bullion markets might lead to narrower spreads in gold-backed ETFs and derivatives, impacting execution strategies for fund managers.
Equity markets reacted similarly, with the ASX200 rising by 1.1% over the week, driven by miners and exporters likely to benefit from diminished trade tensions. This rally was echoed in other Asia-Pacific markets, reflecting a widespread optimism regarding a potential recovery in global manufacturing and the normalization of supply chains.
“When geopolitical risk premiums lessen, we usually observe a shift in capital allocation towards growth and yield assets,” noted a commodities strategist based in Sydney. “Gold, although still a vital portfolio diversifier, tends to lag in performance during such cycles unless inflation expectations surge simultaneously.”
Looking ahead, market participants will be attentively watching the next phase of trade talks for confirmation on tariff reduction timelines. Any deviation from the current path could spark renewed volatility, especially in precious metals. For the time being, however, the general sentiment appears to favor a more risk-friendly approach, with gold receding into the background behind pro-cyclical assets.