Gold Retreats from Historic $3,500 Peak as Trade Tensions Ease

Gold prices have pulled back significantly from last week’s all-time high of $3,500 per ounce, dropping below $3,250 as signals of potential de-escalation in US-China trade tensions reduce safe-haven demand. The precious metal is now trading at its lowest level since mid-April, extending losses for a third consecutive session amid growing investor optimism about possible trade agreements between the United States and major Asian trading partners, including China, Japan, and South Korea.

The sell-off accelerated Thursday after President Donald Trump announced there was a “very good probability we’ll reach a deal with China” and mentioned potential trade agreements with other Asian economies. This positive shift in trade rhetoric has prompted investors to reduce gold positions that had been built up during April’s dramatic surge, which was fueled by fears of a full-blown trade war following the implementation of Trump’s sweeping tariff policies.

Technical Breakdown Signals Further Weakness

Gold’s price action has triggered significant technical warnings, with the breakdown below the key $3,265-$3,260 support zone prompting accelerated selling. According to FXStreet, this breach represents a critical trigger for bears, with the metal now testing the 50% Fibonacci retracement level around $3,229-$3,228.

Market observers note that gold’s technical picture has deteriorated considerably over the past week. TradingView analysts identify key resistance levels at $3,269, $3,331, and $3,367, with support targets at $3,247, $3,212, $3,167, and $3,136. The formation of a bearish pattern on short-term charts suggests continued downward pressure, with analysts at Economies.com noting that gold price has declined in recent intraday trading “after hitting the resistance of its EMA50,” while breaking a minor bullish trendline.

Central Bank Demand Remains Supportive

Despite the recent pullback, institutional demand for gold – particularly from central banks – continues to provide significant price support and limit downside risk. According to Goldman Sachs, central bank gold purchases have far exceeded expectations in recent months, with the investment bank recently raising its year-end price target from $2,890 to $3,100 per ounce.

“We also see upside risk to our gold price forecast from stronger-than-expected central bank demand on higher US policy uncertainty,” writes Goldman Sachs analyst Lina Thomas. She notes that if purchasing by central banks hits 70 tonnes per month on average, gold prices could climb as high as $3,200 by the end of 2025. J.P. Morgan Research similarly maintains a bullish outlook, with analyst Natasha Kaneva noting that “a universal tariff scenario would likely supercharge the broad price effects for precious metals,” with the bank forecasting prices to rise toward $3,000/oz in 2025.

China’s “Gold Fever” Cools Temporarily

The recent gold correction coincides with the closure of Chinese financial markets for Labor Day holidays, removing a key source of demand that had helped drive prices to record levels. According to BullionVault, China’s gold markets closed for a long weekend after “gold fever” among Chinese investors drove unprecedented trading volumes, with the Shanghai Gold Exchange’s benchmark price hitting a record high of ¥830 per gram last week.

The timing of China’s market closure has exacerbated gold’s weakness, as Shanghai’s gold exchanges had been experiencing record-breaking trading volumes throughout April amid concerns about US-China trade relations. China’s absence from the market comes at a critical time, as the World Gold Council notes that “China and India are gold’s largest markets” with Asia making up more than 60% of annual demand (excluding central banks). Analysts anticipate renewed Chinese buying interest when markets reopen Monday, particularly if prices remain near current levels.

Economic Data Impacts Price Outlook

Recent economic data showing a contraction in the US economy has added complexity to gold’s price dynamics. The US economy shrank by 0.3% in the first quarter of 2025, marking its first decline since early 2022, with a 41.3% jump in imports playing a significant role as businesses stockpiled goods ahead of Trump’s tariff implementation. This weaker-than-expected economic performance initially supported gold prices, but has since been overshadowed by positive developments on the trade front.

Market participants are now closely monitoring Friday’s crucial US jobs report for further direction. According to Peter Grant, vice president and senior metals strategist at Zaner Metals, quoted by CNBC, “Employment is going to be an important focus this week… but I don’t think that anything is going to materially impact the Fed expectations on the policy, unless it’s really out of line”. Weak employment data could reignite concerns about economic growth and potentially revive safe-haven demand for gold.

Analyst Forecasts Remain Bullish Long-Term

Despite the current correction, most analysts maintain positive longer-term price forecasts for gold. A recent Reuters poll of 29 analysts and traders returned a median forecast of $3,065 per troy ounce for 2025, significantly higher than the $2,756 predicted in a survey three months ago. UBS has also turned more bullish, with strategist Joni Teves raising her full-year forecast from $2,800 to $2,900 per ounce while predicting gold could reach as high as $3,200 in 2025.

For investors, the current price correction may present a buying opportunity, according to David Meger of High Ridge Futures, who told Reuters that continued uncertainty over Trump’s tariff policies and global economic implications could push gold toward “$3,590 for quarter-end” and potentially “$3,800 an ounce” by year-end. This bullish long-term outlook reflects expectations that economic uncertainty, inflation concerns, and ongoing central bank purchases will support gold prices even if short-term trade tensions ease.