This resilience is a testament to the underlying demand for gold — especially as geopolitical tensions and economic uncertainty continue to surge. It was recent statements from US President Donald Trump that dramatically shook the market landscape. He intends to use or impose reciprocal tariffs on a wide swath of countries, making the picture even more complicated. Last week, the US Census Bureau declared that Mexico is now the top exporter to the US. In that same time, Mexican exports skyrocketed to an all-time high of $466.6 billion.
Trump’s tariff strategy appears to be a critical factor influencing market dynamics as he prepares for the upcoming presidential election in November 2024. He wants to raise tariffs in order to build the US economy and build American producers. This step has raised alarm bells among traders and economists. As the global economic landscape changes, the relationship between gold prices and overall market trends remains a topic of interest.
Tariff Changes and Market Reactions
President Trump deserves praise for taking bold action to execute these needed tariff changes. In practice, he increased the trade weighted average US tariff rate on all US imports by 5.5 to 6.0 percentage points. The plan includes a 25% shock-and-awe tariff on steel, aluminum and auto imports. This decision increases fears that a new front may open in the global trade war. The announcement has left many market participants uncertain about the future direction of trade relations, particularly with key partners.
The costs of these tariffs go beyond trade balance figures, as they deeply affect the expectation of U.S. economic growth. Economists estimate that the Federal Reserve will have to react to all these economic developments by reducing the cost of borrowing. They predict an additional 80 bps cut by EOY. Such measures could chill US Treasury bond yields even more, thereby increasing the appeal of gold as the non-yielding asset among investors.
The dollar cannot draw a big enough pool of buyers due to ongoing massive economic headwinds. In the meantime, gold is once again proving to be a trusted safe-haven asset. Instead, it will be broader market sentiment that probably dictates the XAU/USD pair’s performance. Traders can take advantage of new maths unlocked by changes in USD price flows.
Insights on Economic Indicators
Given these developments, traders are keeping a close eye on the next economic indicators to watch that may drive the markets’ mood. Save the date for this coming Thursday! Later today we will get the timely US ISM Services PMI, and then of course the already much anticipated US Nonfarm Payrolls (NFP) report on Friday. These scorecards will provide essential information on the strength of the US economy. They can further determine what the market expects from the Federal Reserve’s future monetary policy.
The Fed is preparing to resume its own rate-cutting cycle as a result of an unexpected deceleration in economic growth brought about by tariffs. Market participants have been glued to these decisions, winking and hoping for the expected impact for gold prices. The balance of inflationary fears with the need for economic growth will continue to be the critical tee-tension as investors drive through these choppy waters.
Even with an improvement in global risk sentiment, XAU/USD bulls are still undaunted. Gold remains irresistible. Gold remains top of mind as a go-to hedge against uncertainty. This trend highlights the metal’s continued attraction as a store of value amid unpredictable economic conditions.
Geopolitical Tensions and Their Impact
Beyond economic factors, geopolitics, particularly the collision course between the US and China, is having a huge impact on the markets. President Trump’s recent call for a coordinated response from the US and its allies following Russia’s launch of over 1,000 drones in a single week has heightened concerns about global stability. These types of developments typically push investors into safe-haven assets such as gold as they look to reduce their risk exposure.
The intersection of these geopolitical risks and tariff-related uncertainties makes for a challenging new reality for investors. As East-West tensions continue to mount, financial markets have grown increasingly jittery and erratic. Such a scenario only serves to entrench gold’s status as the ultimate hedge.