Background on Donald Trump and His Trade Policy
Donald Trump, the President of the United States, has been a significant figure in global trade discussions. His administration has imposed tariffs on various countries, causing ripples in international markets. Recently, Trump softened his aggressive trade stance towards the European Union (EU), opting for a less confrontational approach. This shift in policy, coupled with the strengthening US dollar, has led to a decline in gold prices.
Gold Prices Decline
On Tuesday, gold prices fell by over 1% as the US dollar’s upward trend increased pressure on the safe-haven asset. Spot gold decreased by 1.4% to $1,297.49 per ounce by 4:22 AM CDMX time, while US gold futures dropped by 2.1% to $1,296.50 per ounce.
Reversal of Previous Gains
Gold prices had already weakened on Monday following Trump’s retraction of his threat to impose new tariffs on the EU in the coming month. Instead, he set a July 9 deadline for trade negotiations. Ole Hansen, Chief Market Strategist for Saxo Bank, explained that gold prices were falling for the second consecutive day due to technical selling along a downward trend line, supported by reduced safe-haven demand amid rising equity prices after Trump softened his trade stance with the EU.
Dollar’s Strengthening Impact
The US dollar index reversed its previous declines, rising by 0.3%. This appreciation makes gold, which is dollar-denominated, more expensive for buyers using other currencies.
Market Anticipation of Fed Statements and Inflation Data
Market participants are keeping an eye on upcoming speeches from several Federal Reserve officials this week and the US Personal Consumption Expenditure (PCE) inflation data on Friday to gauge the Fed’s rate-cut trajectory. Lower interest rates enhance gold’s appeal.
Current Interest Rate Expectations
Currently, investors anticipate approximately 47 basis points of interest rate cuts by the end of the year, starting from October. Rhona O’Connell, an analyst at StoneX, stated that short-term prospects remain unchanged: gold is consolidating, and prices are expected to stay firm amid market uncertainties, though the peak has likely been reached.
Impact on Other Precious Metals
The decline in gold prices also affected other precious metals. Silver spot price fell by 0.9% to $15.06 per ounce, platinum dropped by 0.7% to $1,077.77 per ounce, and palladium lost 1% to $978.01 per ounce.
Key Questions and Answers
- What is the main reason for the decline in gold prices? The strengthening US dollar and President Trump’s less aggressive trade stance towards the EU have contributed to the decline in gold prices.
- How does a stronger dollar affect gold? A stronger dollar makes gold more expensive for buyers using other currencies, reducing demand and thus lowering gold prices.
- What role do Federal Reserve statements and inflation data play in gold’s performance? Market participants monitor these factors to anticipate the Fed’s rate-cut trajectory, which influences gold’s appeal as lower interest rates enhance its attractiveness.
- What are investors’ expectations regarding interest rate cuts? Investors currently anticipate around 47 basis points of interest rate cuts by the end of the year, with expectations starting from October.
