Gold prices climbed sharply over the last couple of sessions due to growing concerns over US tariffs.
“The positive move is sponsored by the growing market worries about the potential economic fallout from US President Donald Trump’s trade tariffs, which continues to act as a tailwind for the safe-haven bullion,” Haresh Menghani, editor at FXstreet, said in a report.
Apart from this, a cooler inflation print in the US for February also increased bets about the Federal Reserve cutting interest rates in the coming months.
Lower interest rates bode well for gold as it is a non-yielding metal.
At the time of writing, the most-active gold contract on COMEX was at $2,947.62 per ounce, slightly up from the previous close.
US inflation cools
Last month’s US consumer price index showed a smaller increase than anticipated, signaling a potential easing of inflationary pressures.
However, experts caution that this positive trend may be short-lived.
The looming impact of aggressive tariffs on imported goods is expected to trigger a rise in the cost of living in the coming months.
The February US consumer price inflation data was lower than expected, with both headline and core inflation at 0.2% month-on-month, compared to consensus predictions of 0.3%.
The annual rate of headline inflation decreased to 2.8% from 3%, and core inflation decreased to 3.1% from 3.3%.
“The details are less rosy though with a substantial 4% MoM drop in air fares the main factor driving the softer inflation readings,” James Knightley, chief international economist at ING, said in a report.
The US Federal Reserve’s rate-cutting cycle was reinforced by cooling inflation, which increased the attractiveness of non-interest-bearing gold and supported bets that the Fed will continue to lower rates.
“However, markets quickly realized that the February inflation data failed to capture the impact of a host of tariff barriers launched by Trump, bringing recession fears back on the table alongside the US Dollar’s underperformance,” Dhwani Mehta, analyst at FXstreet, said in a report.
Trumop tariff uncertainty
“Fears of tariff uncertainty have returned in Asian trades on Thursday, fading a temporary relief offered to investors by Wednesday’s US inflation cooldown,” Mehta added.
This nervousness allows the gold price to extend its upbeat momentum to a third consecutive day.
The 25% tariff imposed by Trump on all steel and aluminum imports became effective on Wednesday. He also warned the European Union and Canada that any countermeasures they take will be met with a response.
Next month, the EU will impose tariffs on $28 billion worth of US goods, as announced by the European Commission on Wednesday.
Additionally, Canada announced 25% tariffs on over $20 billion worth of US goods.
The economic growth outlook is threatened by an escalating global trade war. This is due to the tit-for-tat tariffs imposed on the US by Canada, China, and the EU, which has caused markets to remain cautious.
“In light of this, investors scurry into the traditional store of value, Gold price while the US Dollar (USD) and the US Treasury bond yields face renewed headwinds,” Mehta added.
Contrarian view
According to Commerzbank AG, gold prices have been hovering around $2,900 per ounce for the last one week with tailwind from a weaker dollar and bond yields.
The increasing uncertainty around US President Trump’s tariff policy is also slowing US economic growth and the US equity markets.
“However, the gold price is already trading at a very high level due to the sharp rise since the start of the year, which limits the upside potential,” Carsten Fritsch, commodity analyst at Commerzbank, said.
The most recent CFTC statistics indicate that speculative financial investors have reduced their net long positions for six consecutive weeks, which apparently aligns with this perspective.
Fritsch added:
This means that the entire build-up of positions since the beginning of the year has been reversed. We also remain sceptical that the gold price can still rise significantly.
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