Gold held firm near $3,237.86 an ounce on Tuesday, following a sharp 2.7% drop on Monday — the largest single-day loss in over a month. The retreat in bullion came as markets reacted positively to a temporary easing of trade tensions between the US and China, which in turn reduced the appetite for traditional safe-haven assets like gold.

The dramatic sell-off was a reaction to renewed risk sentiment after the US and China announced a mutual agreement to temporarily roll back tariffs, calming fears of a full-blown trade escalation. The development redirected investor interest toward riskier assets like equities, which showed strong gains globally.

US-China Tariff Truce Reduces Risk Aversion

The breakthrough in trade relations saw the US reduce its tariffs on Chinese goods from a punishing 145% to a more moderate 30% for a 90-day period. Simultaneously, Beijing cut its own tariffs to 10% on most American goods. This significant shift signaled a possible softening in trade rhetoric from both sides.

The announcement restored optimism in global markets and led to a broad-based rally in stocks, diminishing the need for protective assets like gold. Gold, often considered a hedge against geopolitical and economic uncertainty, became less attractive in the short term.

Dollar Surge and Treasury Yields Add Pressure on Bullion

Another major factor working against gold was the rally in the US dollar, which posted its largest gain since the November post-election surge. The Bloomberg Dollar Spot Index rose by 1% on Monday, before leveling off slightly on Tuesday.

A stronger dollar typically weighs on gold prices as it makes the metal more expensive for foreign buyers. Alongside this, US Treasury yields rose sharply, further eroding bullion’s allure. Gold doesn’t offer any interest or yield, and therefore becomes less competitive compared to interest-bearing assets when yields rise.

Reset of Fed Expectations Dampens Bullion’s Outlook

Investor expectations around Federal Reserve policy also shifted. With the trade environment improving and inflationary pressures persisting, traders now anticipate only two rate cuts in 2025 — down from previous expectations of three or more.

This new projection lowers the incentive to hold gold, as rate cuts generally enhance gold's attractiveness by decreasing the opportunity cost of holding non-yielding assets. The recalibrated outlook has removed a key tailwind that supported bullion prices in the first half of the year.

Gold’s 2025 Outlook: Still Resilient, But Near-Term Risks Loom

Despite the pullback, gold remains nearly 25% higher year-to-date, supported by strong demand earlier in the year driven by persistent inflation concerns, geopolitical unrest, and central bank buying.

However, the recent easing of tensions and firming dollar suggest that the bullish run could lose momentum, at least in the short term. Some analysts believe the market reaction may be premature, noting the lack of concrete details in the US-China tariff agreement. If talks fall apart or tariffs are reinstated, gold could rebound swiftly.

Safe Haven Demand Could Return on Renewed Uncertainty

Market observers caution that while risk appetite has improved, uncertainty still lingers beneath the surface. The agreement between the US and China is temporary and could unravel, especially as political tensions persist ahead of the 2025 US presidential elections.

Any re-emergence of geopolitical friction or financial market stress could reignite demand for safe haven assets, sending gold prices back toward their record highs reached last month. The $3,300 mark remains a key psychological resistance, and any fresh catalyst could push prices higher again.

Precious Metals Mixed Amid Stabilised Sentiment

In other metals, silver, palladium, and platinum remained largely unchanged on Tuesday. These metals often move in tandem with gold but are also heavily influenced by industrial demand, which remains uncertain amid shifting global growth forecasts.

While gold dominates headlines, the broader precious metals complex is showing signs of caution, with investors waiting for more clarity on macroeconomic signals before making large moves.

Conclusion: Gold at a Crossroads Amid Trade Calm and Policy Shifts

To summarise, gold is currently stabilising after a steep decline, with market sentiment leaning toward riskier investments in the wake of the US-China trade truce. However, traders are now recalibrating expectations on rate cuts and inflation, which could shape the metal’s trajectory in the coming quarters.

While gold has enjoyed a stellar run in 2025, the path ahead may be bumpy, especially if interest rates stay higher for longer or if the dollar remains strong. That said, any reversal in global calm could quickly reignite bullish sentiment for bullion, making it essential for investors to stay alert and flexible.

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