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Gold ETFs swell 5% amid trade negotiations

Gold tumbled back below $1,400 an ounce after the U.S. and China reached a truce in their trade war, dealing a blow to havens.

Prices fell the most in a year after President Trump and Xi Jinping agreed to resume negotiations. Still, the setback may be temporary as investors now train their focus on U.S. jobs data due Friday for clues on the Federal Reserve’s next move on policy.

“Gold was well overdue a period of consolidation and gold bulls should welcome it,” said Ross Norman, CEO of gold brokerage Sharps Pixley. “This provides a welcome entry point.”

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A worker carries a 28 kilogram gold bar after casting and cleaning in the foundry at a gold mine in Westonaria, South Africa. Photographer: Waldo Swiegers/Bloomberg

Bullion hit a six-year high last week as top central banks including the Fed adopted a more dovish tone and tensions spiked between the U.S. and Iran. Driven by speculation that U.S. interest rates may soon be headed lower, investors plowed into bullion-backed ETFs, which swelled 5% in June, the most since 2016.

Spot gold dropped as much as 2%, the biggest intraday decline since June 2018. Prices rallied 8% last month. A gauge of the U.S. dollar rose 0.2% on Monday after sagging 1.6% in June.

Gold’s pull-back was a natural reaction to the dollar-friendly news, said David Govett, head of precious metals trading at Marex Spectron in London.

“I don’t think we collapse from here, but I do think we have seen the highs now.”

After meeting Xi, Trump said he would hold off imposing additional tariffs on Chinese imports and delay restrictions against Huawei Technologies, letting U.S. companies resume sales to China’s largest telecommunications equipment maker. Further details on the deal were light though.

With China-U.S. trade tensions temporarily out of the way, gold traders’ focus is back toward fundamentals, and “fundamentals are still reasonably OK,” said Wei Li, head of iShares EMEA investment strategy at BlackRock.

Still, prices were seen remaining under pressure on Monday on improved risk sentiment, with the downside seen at $1,380 and further declines dependent on the dollar strengthening more, Mumbai-based Kotak Securities said in a note.

In other precious metals, spot silver fell 0.1%, platinum gained 0.5% and palladium was 0.7% higher. — Additional reporting by Shery Ahn and Swansy Afonso

Bloomberg News