Gold Dips Amidst Trade Woes as Soaring Dollar Offsets Haven Demand
Following President Donald Trump's imposition of tariffs on imports from Canada, Mexico, and China, gold prices have declined. The dollar's surge has overshadowed haven demand amid escalating trade tensions.
Gold hovered near $2,780 per ounce, slightly below the record high set last Friday. Meanwhile, the U.S. dollar index jumped over 1%, with concerns about the inflationary impact of tariffs potentially keeping interest rates elevated. The rising dollar also makes gold more expensive for international buyers.
"These factors are currently overriding haven demand," said Christopher Wong of Oversea-Chinese Banking Corp., noting that rising price pressures could influence the Federal Reserve's easing cycle. "However, if trade tensions escalate further, we may see renewed interest in gold."
The U.S. announced tariffs of 25% on goods from Canada and Mexico, and 10% on those from China, effective Tuesday. Ottawa retaliated with a 25% counter-tariff on U.S. goods, while Mexico and Beijing vowed corresponding measures. Trump has also threatened tariffs against the European Union, which has promised a forceful response.
A global trade war could significantly impact economic growth, disrupt global supply chains, and roil financial markets. While gold typically benefits from haven demand in such scenarios, the dollar's strength and interest rate outlook are mitigating this trend.
"The strong dollar poses a near-term challenge for gold," said Charu Chanana of Saxo Capital Markets Pte. "However, the long-term impact of tariffs is likely to be negative for the dollar, as protectionist policies could erode U.S. economic dominance."
Spot gold fell 0.6% to $2,782.94 per ounce in Singapore as of 9:26 a.m., after gaining 1% last week. The Bloomberg Dollar Spot Index rose 1.1%, building on last week's 1% increase. Silver, platinum, and palladium also declined.