Gold prices have declined early on Monday, breaking a three-day rally that reached a peak of $3,245 on Friday. The drop follows improved market sentiment after positive developments in the US-China tariff situation.
China increased tariffs on US goods to 125% in response to the US raising its tariff rates to 145%. Markets reacted positively to the situation, causing a modest recovery in the US Dollar.
Traders Anticipate Trade Balance Report
Traders are now anticipating China’s Trade Balance report and comments from US Federal Reserve officials for further market direction. The recent tariff changes have led some traders to take profits following the rise in Gold prices.
What we’ve seen so far is a short but intense run-up in gold, capped by a peak at $3,245, only to be followed by a slide as the broader market assessed positives in the ongoing tariff rivalry. By Friday, prices had already tested resistance, and the decline early Monday gives weight to the idea that traders were merely locking in profits rather than responding to any fresh economic threat.
The key trigger behind this shift appears to be the partial thaw in US-China trade tensions, despite the headline tariff figures appearing steep. While both sides ratcheted up formal tariffs — China to 125% and the US to 145% — the markets read the situation as a glass-half-full moment, signalling perhaps that deeper escalation may be avoided or that negotiations are still within reach. This slight easing in anxiety nudged the Dollar up and pushed non-yielding assets like gold back down.
When dollar strength resurfaces after being subdued, it tends to exert downside pressure on gold, which many already consider overbought after its recent rally. The implied volatility in options pricing remains tight, suggesting that large moves are not widely anticipated just yet. However, that can shift quickly following macroeconomic announcements.
Upcoming Economic Indicators
The upcoming numbers from Chinese trade data will likely influence near-term positioning. Any drop in Chinese exports or a shrinking surplus could further feed into risk-on sentiment, putting more wind into the sails of the greenback, again discounting gold-linked instruments. That said, we’re conscious of overlapping central bank commentary later this week, especially statements that might affect rate cut expectations.
If US policymakers continue to push back against rate cut speculation, that will likely reinforce the recent lift in Treasury yields. Rising yields typically trigger outflows from interest-free holdings like gold futures, which may extend the current correction, especially among leveraged participants.
From a volatility and options strategy point of view, the recent drop offers a potential inflection point. Implied volatility levels on short-dated options are slightly underpriced relative to the range of potential price swings. For those adjusting their delta exposure, this could be a favourable window to realign hedges or initiate calendar structures around upcoming macro catalysts.
The key is watching how momentum holds up below this retracement from Friday’s high. Should bids return above $3,200 in a meaningful way, that could reignite bullish flows, particularly if real rates come under pressure. Until then, holding pattern behaviour appears more likely, with rotation favouring assets tied more directly to global recovery sentiment. Contrarian views might begin forming around technical support levels, but they rely heavily on forthcoming data surprises or a reintroduction of risk aversion.
We should also keep in mind that options open interest remains stretched in higher strike ranges, driven more by speculation than fundamental demand. From that perspective, a sharp drop toward psychological thresholds could force positioning shifts if stop orders are triggered, which might temporarily exaggerate downside pressure.
In the next few sessions, the mood will likely be driven less by past headlines and more by tone and content from policymakers. Depending on the hawkish or dovish pitch, we may see clearer direction either back toward recent highs—or away from them with tighter range-bound trading. For now, gamma is cheap, and that may not remain the case.
