Gold Is on A Down Path to $3000

Gold prices have fallen by 5.5% to $3,143 per troy ounce, dipping as low as $3,120 this week—the lowest level since 10 April, when U.S.-China trade tensions were at their peak.

Now, the landscape has shifted following the start of trade talks between the two nations in Switzerland last weekend. Both countries agreed to reduce tariffs: the United States will lower import duties on Chinese goods to 30%, while China will reduce tariffs on U.S. goods to 10%. Additionally, China has agreed to lift its ban on Boeing aircraft imports. The talks are expected to last for 90 days, but a significant breakthrough appears unlikely unless one side is willing to compromise—something that currently seems improbable. As a result, gold prices may have room to continue their correction before mid-August. Prices have already reached support at $3,130–3,150 and are now pushing lower, with the next support zone at $3,030–3,050 per ounce, where a potential recovery may take place.

The longer-term outlook is less clear. Gold recently experienced extreme overbought conditions—the most significant in the past 45 years. In 1979, similar circumstances led to a prolonged flat range that lasted 25 years. The sharp rally between 2008 and 2011 also resulted in a multi-year consolidation phase. A comparable scenario could unfold now. However, the Federal Reserve (Fed) continues to maintain high interest rates, resisting calls from U.S. President Donald Trump for immediate rate cuts. It remains uncertain whether the Fed will relent and ease policy following April’s unexpected decline in inflation to 2.3% year-on-year, from 2.4%, or whether it will continue to cite tariffs as a primary driver of persistent inflation.

Fed Chair Jerome Powell is due to speak again this week and is expected to clarify the Fed’s stance on tariffs and inflation in light of the U.S.-China 90-day truce.

Investor positioning reflects continued faith in the Fed’s hawkish stance. U.S. 10-year Treasury yields reached a high of 4.55%, while the probability of a quarter-point rate cut in June has fallen to a negligible 8.3%, down from 35% just a few weeks ago.

Large investors are reducing exposure to gold. The SPDR Gold Trust (GLD) has seen outflows totalling $1.57 billion over the past four weeks. This marks a significant reversal from the record inflows of $2.04 billion seen five weeks ago when prices traded in the $3,050–3,100 range. This week alone, another $145.9 million has been pulled from the fund. If gold prices fall to the $3,030–3,050 support zone, investor behaviour at those levels could serve as a crucial indicator of future price direction. They may be positioning to re-enter long trades at more attractive levels.