Gold falls as potential US-China trade deal dents safe-haven demand

NEW YORK: Gold prices fell 2 percent on Monday, as hopes of easing US-China trade tensions lifted risk appetite for equities, while investors awaited major central bank meetings this week for rate cut cues. Spot gold was down 2 percent at USD4,029.69 per ounce as of 1122 GMT.

Prices hit a record high of USD4,381.21 on October 20, buoyed by rising bets for US rate cuts, and geopolitical and economic uncertainties, but have since fallen more than 5percent. US gold futures for December delivery lost 2.3 percent to USD4,042.80.

Asian stocks surged as signs of a detente in China-US trade tensions buoyed risk appetite in a strong start to a week that will be headlined by central bank meetings and megacap earnings.

“A possible trade deal between the US and China is supporting risky assets and weighing on gold, but we should also remember that potentially lower tariffs will allow the Federal Reserve to cut rates further,” UBS analyst Giovanni Staunovo said.

The US and China are set to “come away with” a trade deal, US President Donald Trump said, a day after top officials of the two countries hashed out a framework for Trump and Chinese President Xi Jinping to decide on during their upcoming meeting in South Korea. Meanwhile, the Fed is expected to cut rates by a quarter percentage point on Wednesday, a view supported by softer-than-expected September inflation.

With a 25-basis-point cut already priced in, markets are looking ahead to any forward-looking remarks from Fed Chair Jerome Powell at the meeting.

“Lower real interest rates should still support demand for gold. The market consensus is looking for the Fed to cut rates by 25 basis points, so I don’t expect much movement around the FOMC meeting,” Staunovo added.

Non-yielding gold tends to benefit in a low-interest-rate environment. Elsewhere, spot silver fell 2.3 percent to USD47.48 per ounce, platinum eased 0.8percent to USD1,593.43 and palladium lost 0.8 percent to USD1,417.58.