Gold, defense and more: Five sectors to watch after pivotal Trump-Xi meeting

The recent U.S.-China summit between President Trump and Premier Xi Jinping produced key agreements impacting global markets, notably China's temporary lifting of rare earth export restrictions, which benefits semiconductor and defense sectors despite ongoing concerns about China's tech self-sufficiency. This détente, coupled with Trump's broader dealmaking approach, led Citi to downgrade its short-term gold price target to $3,800/oz, anticipating further declines. Additionally, China's commitment to resume U.S. soybean purchases is poised to bolster the agricultural sector, with Morgan Stanley projecting rising prices. Investors are advised to consider China's diversifying trade relationships and domestic reforms as critical drivers beyond bilateral politics.

Analysis

The recent U.S.-China summit yielded a temporary de-escalation of trade tensions, highlighted by China's one-year halt on rare earth export restrictions. This agreement provides critical supply clarity for semiconductors, essential for the AI boom, and positively impacted U.S. rare earth stocks. However, Citi cautions that this may not deter China's long-term tech self-sufficiency goals, as reiterated in its 15th Five-Year Plan.

The improved bilateral relationship is expected to influence commodity markets, particularly gold and soybeans. Citi downgraded its 0-3 month gold target to $3,800/oz from $4,000/oz, citing Trump's broader dealmaking approach and the pause in trade hostilities as drivers for further price declines. Conversely, China's commitment to resume U.S. soybean purchases, with COFCO already importing 180,000 tons, is projected by Morgan Stanley to drive soybean prices to $11.70/bu through 2026.

The defense sector faces mixed signals; while rare earth supply clarity could lower costs for arms manufacturers, Deutsche Bank highlights that U.S.-China cooperation on the Ukraine war could cool investor demand if it accelerates conflict resolution. Furthermore, China's diversifying trade partners, with U.S. exports now only 14% of its total, suggest that its economic trajectory is increasingly shaped by domestic reform and regional integration rather than solely U.S. politics.

Key Decisions for Investors

• Investors should closely monitor the implementation of the rare earth agreement and China's long-term tech self-sufficiency initiatives for potential supply chain disruptions.
• Consider adjusting gold positions given Citi's downgraded short-term price target of $3,800/oz, driven by reduced trade tensions and broader dealmaking.
• Evaluate opportunities in agricultural commodities, specifically U.S. soybeans, as resumed Chinese purchases are expected to drive price appreciation through 2026.
• Focus on companies with exposure to China's domestic reforms and regional trade integration, rather than solely U.S.-China bilateral relations, given China's diversifying trade partners.
• Reassess defense sector holdings, weighing potential cost benefits from rare earth access against the risk of reduced demand if U.S.-China cooperation leads to a faster resolution of the Ukraine conflict.