Gold prices have taken a sharp downturn after reaching all-time highs last week. The precious metal dropped by around 6.5%, with both spot gold and futures experiencing declines. This shift in market dynamics came as signs of de-escalation in the US-China trade tensions led to a rally in global stock markets. The easing trade war fears prompted profit-taking, reducing demand for gold as a safe-haven asset.
Gold’s recent rally, which saw prices surge by more than 25% this year, had been fueled by various factors, including uncertainty surrounding former President Trump’s tariff policies. However, with stock markets recovering and the easing of trade tensions, the demand for gold softened. As a result, the precious metal faced a sharp retreat.
Profit-Taking and Weaker Demand Contribute to Decline
Strategists from Barclays cautioned that gold’s rally had become increasingly stretched, moving beyond its fundamental support. Hedge funds, according to Bloomberg reports, have significantly reduced their net long positions on gold, bringing them to their lowest levels in over a year. Michael Brown, senior strategist at Pepperstone, noted that the decline could accelerate due to weakening buying interest, particularly in Asia. Brown pointed out that “Buying interest has dried up significantly,” as a result of market shifts.
The market’s reaction to the easing of US-China tensions suggests that the rally in gold prices may have been more about economic uncertainty than about any fundamental shift in the precious metal’s inherent value. As global markets show signs of stability, many investors are pulling back on their gold positions.
The Euro’s Role in Gold’s Surge
Despite the recent retreat, gold’s performance in 2025 has been remarkable, largely supported by a weakening US dollar and the strengthening euro. The EUR/USD exchange rate has surged by 11% since February, making gold more affordable for European investors and boosting demand. In March alone, gold ETF purchases in Europe reached $1 billion (€0.88 billion), marking the second-highest global total.
The World Gold Council acknowledged the critical role of both geopolitical risks and the US dollar’s weakness in supporting gold’s price surge. As the US dollar lost ground against the euro, gold prices climbed, creating an attractive opportunity for European investors to accumulate the precious metal.
Short-Term Risks and Long-Term Prospects for Gold
While gold’s long-term outlook remains positive, experts caution that the short-term risks are mounting. The easing of tensions in the US-China trade war, alongside rising stock market confidence, is encouraging traders to move away from safe-haven assets like gold. Analysts believe that the market’s appetite for gold has weakened, as seen in the significant reduction of long positions by hedge funds.
Moreover, concerns over rising inflation, potentially triggered by tariffs, may prompt central banks to tighten their monetary policies rather than continue with loose conditions. This shift could dampen gold’s appeal, making the metal less attractive compared to other assets.
Despite these risks, Brown remains optimistic about gold’s prospects. “Given all the uncertainty elsewhere, gold still looks like a better bet than almost anything else,” he said, pointing to the persistent geopolitical risks and economic instability as key factors that continue to support gold’s value.
Gold’s Future in Uncertain Times
Gold has faced a significant correction after its record-breaking rally, but its long-term potential remains intact. While near-term risks, including profit-taking and shifting market conditions, have tempered its recent gains, gold continues to be seen as a safe-haven asset in times of global uncertainty. Investors and analysts alike will be closely watching the evolution of global trade tensions, inflation rates, and central bank policies as they determine gold’s trajectory in the months ahead.
