Gold prices fell to fresh one-week lows during Asian trade on Friday, putting the precious metal on track for a weekly decline of more than 3% as the United States dollar index (DXY) strengthened and investors priced in a more hawkish Federal Reserve outlook.
By 3:50 pm AEST (5:50 am GMT), spot gold prices were down 1.7% at US$4,570.70 per ounce.
The decline came as optimism surrounding improving trade relations between the United States and China lifted the DXY, which rose 0.3% during the session.
U.S. President Donald Trump said in a Fox News interview on Friday that China would gradually open its markets and intended to purchase significant quantities of American agricultural goods and oil, signalling improving geopolitical relations between the world’s two largest economies.
At the same time, Trump’s comments that he was “not going to be much more patient on Iran” contributed to a rebound in oil prices, reinforcing concerns that higher energy costs could fuel inflationary pressures.
The prospect of persistent inflation strengthened expectations that the Federal Reserve could maintain interest rates at elevated levels for longer, boosting U.S. Treasury yields and supporting the greenback.
Higher bond yields and a stronger U.S. dollar typically weigh on gold prices, as the precious metal does not offer interest income and tends to perform better in lower-rate environments.
Investors are now closely watching the second day of talks between Trump and Chinese President Xi Jinping for further developments that could influence market sentiment.
Market participants are also monitoring any signs of progress towards ending the conflict involving Iran, as well as potential developments surrounding Taiwan, both of which could trigger renewed volatility in gold markets.
