Gold prices dropped 2% on Tuesday as the U.S. dollar strengthened and optimism grew over improving trade relations between Washington and Brussels, reducing demand for safe-haven assets.
U.S. gold futures fell to $3,322.70, marking a second consecutive day of losses. The decline followed President Trump's softened stance on European tariffs, with the White House reinstating a July 9 deadline for trade talks instead of imposing new duties.
The U.S. dollar index rose 0.4%, making gold more expensive for foreign buyers. Additional pressure came from expectations around the Federal Reserve's policy path, as traders await key speeches from Fed officials and Friday’s release of the core PCE index - its preferred inflation measure. Markets are currently pricing in around 47 basis points of rate cuts by year-end, beginning in October.
Investor appetite for gold has also waned, with gold-backed ETFs seeing outflows for five consecutive weeks since mid-April's peak. Despite this, gold is still up more than 25% year-to-date, though it remains roughly $180 below its all-time high. Citigroup, reflecting a cautious outlook, recently reaffirmed a short-term price target of $3,500 per ounce.
While optimism over trade is growing, markets remain alert to broader risks, including the rising U.S. deficit and ongoing geopolitical tensions in the Middle East and Ukraine.