Gold Loses its Shine as Trump Tariff Threats and Rate Outlook Shake Markets
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Gold futures were 0.5% lower at $3,300.50 an ounce, while spot gold retreated 0.9% to $3,295.53 per ounce.
Midas Untouched
Investors lost the Midas touch because of fears over rising inflation. That has mostly been driven by President Trump's threat to impose 10% tariffs on BRICS nations, and the warning to 14 countries including Japan and South Korea of planned tariff increases set to take effect on August 1.
Expectations that such tariffs could add to inflationary pressures have pushed U.S. yields higher, reinforcing bets that the Federal Reserve may delay any potential rate cut. It makes its next decision on July 30.
Generally, the gold price goes up when interest rates go down, and down when rates go up.
'The Fed Fund Futures market is expecting just less than 2 rate cuts for the rest of this year. Some analysts think that the Fed will scale back rate cuts, as tariffs weigh on the inflation outlook,' said Kathleen Brooks, research director at XTB.
Marex analyst Edward Meir said that a stronger dollar and higher Treasury yields were putting pressure on gold.
The U.S. dollar strengthened, hitting a two-week high. Yields on 10-year U.S. Treasuries also remained elevated, near their highest levels in three weeks.
Safe Haven
Higher yields tend to reduce the appeal of non-yielding assets such as gold, while a firmer dollar makes gold more expensive for holders of other currencies.
But there is still hope for gold, which is traditionally seen as a safe haven in troubled times. There are still concerns over the impact of tariffs and whether it could lead to a global economic slowdown.
Worries over geopolitical events in the Middle East, Asia and Europe also remain current.
Such uncertainty this year has already helped drive gold-linked ETFs such as the SPDR Gold Shares (GLD), up 27% in the year-to-date and the VanEck Gold Miners ETF (GDX) up 56% over the same period.
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