Gold prices surge as trade war risks rise

Gold prices surged from $2,880 to $2,020 per ounce on Tuesday. If gold prices rise, they may encounter resistance at $2,930 per ounce, while if gold prices decline, support may be encountered near $2,830 per ounce. 

Gold prices reached a new all-time high of $2,956 per ounce in February but plummeted soon after. Gold prices rallied last week, however, on renewed US tariff concerns and a weaker dollar. 

Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar plummeted on Tuesday and the index dipped from 103.9 to 103.4. US treasury yields on the other hand gained strength, with the US 10-year bond yield rising from 4.21% to 4.28%.

Uncertainty over US President Donald Trump’s future policies and trade tariffs promotes a risk aversion sentiment. Concerns that Trump’s trade policies may ignite global trading wars are raising the appeal of safe-haven assets, such as gold. Trump has threatened to impose reciprocal tariffs on many countries, which would raise US import taxes to match those imposed by the country’s other trading partners. 

On Tuesday, the White House announced a global 25% tariff on global steel and aluminum imports to the US that would take effect on Wednesday. Moreover, Trump announced on his social media that he would impose a double tariff of 50% on aluminum and steel products from Canada. Trump backpedaled on his threats to impose double tariffs on Canada, however, just a few hours later.

Trump’s tariffs may spark global trade wars and are causing turmoil in markets. Trump’s tariffs are likely to raise global inflation and lower economic outlook, thus promoting a risk aversion sentiment that boosts safe-haven assets. 

Trump’s economic policies are raising concerns that the US economic growth will slow down. Many analysts are already expressing concerns that the US will enter recession. Trump tried to downplay recession risks in an interview with Fox News over the weekend. Trump carefully avoided the word recession, stating instead that the US economy is in a period of transition.

Gold prices supported by rising Fed rate cut expectations. The US Federal Reserve held interest rates steady at its January meeting after delivering three consecutive rate cuts in 2024. FOMC policymakers voted unanimously to maintain the federal funds range to a target range of 4.25% to 4.50%. Market odds of rate cuts within the year are on the rise, putting pressure on US treasury yields and boosting gold prices. Markets are currently pricing in at least two rate cuts within 2025, with rising possibility of a third one at the end of the year.

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Written by:
Myrsini Giannouli

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