Gold unable to recover from earlier drop after US-China agree to major tariff cut

LONDON (May 12) Gold (XAU/USD) sinks more than 3.0% at the start of the European trading session and heads towards $3,231 at the time of writing as after US and China have brought some low-hanging fruit for the equity markets. China has agreed to lower its tariffs on the United States (US) to 10% from the initial 125%, while the US will lower its tariffs on China to 30% from 145%, both for 90 days. The announcement caused a risk-on wave in markets, with investors fleeing from safe-haven assets such as Gold. 

US President Donald Trump on Friday already hinted at the possibility that the talks could be productive and issued a general message to “buy stocks now” on his Truth Social Network. In this context, Gold has already lost over 8% from its all-time high at $3,500 reached on April 21 

Daily digest market movers: Correlations kick in

• The US-China deal to temporarily remove tariffs has sent shockwaves in financial markets:  US yields are climbing higher, with the US 10-year yield hitting 4.43%, a level not seen since the beginning of April. Expectations are that a surge in demand on the back of this tariff relief could lead to a spike in inflation. 
• In the commodity space, Oil is rocketing higher by more than 2% to $62.50 at the time of writing, as demand is expected to pick up again as trade tensions ease. 
• Equities are also surging, with Chinese stocks rallying over 1%. European stock indices see milder gains, while US futures are outperforming with gains between 2.50% and 3%. 
• US Treasury Secretary Scott Bessent said that “neither the US nor China wants to decouple” and that he would like to see China open its market more to US goods. A possibility for a purchasing agreement is possible, Bessent went on to say in the statement, Bloomberg reports. 

FXStreet