On Monday, May 12, 2025, gold prices tumbled over 3%, retreating from last Friday’s record-high weekly close. This sharp decline came as the S&P 500 and other global stock markets surged in response to the announcement of a 90-day truce in the US-China trade war, temporarily reducing tariffs on each other’s goods and easing broader geopolitical tensions.
Why Gold Prices Dropped
The gold price slid from $3,324 per ounce to as low as $3,208 before stabilizing around $3,240. The drop followed the US and China agreeing to reduce tariffs, with the US cutting levies on Chinese imports from 145% to 30% and China lowering its duties from 125% to 10%. This significant shift reduced demand for gold, a traditional safe-haven asset, as investor focus pivoted towards riskier assets. According to Giovanni Staunovo, a precious metals analyst at UBS, the ceasefire has diminished the immediate need for financial safe havens like gold. “The de-escalation of tensions between China and the US is reducing the demand for safe-haven assets,” Staunovo noted, highlighting that a prolonged period of reduced tariffs could further pressure gold prices.
Stock Markets Rally
In contrast, global stock markets celebrated the trade truce. The S&P 500 surged 2.6%, hitting its highest level since early March, while the Dow Jones Industrial Average jumped nearly 1,000 points. The tech-heavy Nasdaq also benefited, with companies like Apple and Nvidia seeing significant gains.
Meanwhile, Turkey’s BIST 100 index rose over 3% to surpass the 9,600 mark, driven by news that the Kurdistan Workers’ Party (PKK) has announced its dissolution, potentially easing long-standing regional instability.
Other Geopolitical Developments
Adding to the optimistic tone, India and Pakistan agreed to a full, immediate ceasefire in the Kashmir region, ending weeks of escalating tensions. The ceasefire, reportedly brokered by the United States, is seen as a major step towards regional stability and has added to the overall bullish sentiment in global markets.
Despite the recent dip, gold remains up over 20% for the year, reflecting a robust 2025 performance amid economic uncertainties, inflation concerns, and earlier geopolitical flare-ups. However, as tensions ease and risk-on sentiment grows, analysts expect a more challenging environment for bullion in the near term.
As markets digest this wave of positive geopolitical news, traders will be closely watching for any signs of renewed tension or shifts in central bank policy, both of which could quickly swing sentiment back in gold’s favour.
