Gold Drops Amidst Trade War Jitters and Strong US Dollar
Singapore, June 1, 2025 - Gold prices fell after President Donald Trump implemented tariffs on imports from Canada, Mexico, and China. The surge in the US dollar overshadowed haven demand as global markets braced for potential trade wars.
Gold lost nearly 1% to trade below $2,780 per ounce, despite remaining close to the record high reached on Friday. The US dollar index jumped by its largest intraday margin in almost three months.
The inflationary impact of tariffs between the world's largest economies could maintain elevated borrowing costs, posing a challenge for gold, which does not yield interest. Simultaneously, a rising dollar makes gold more expensive for international buyers.
"These dynamics are currently overriding haven demand," said Christopher Wong, a strategist at Oversea-Chinese Banking Corp. "However, if trade tensions escalate with further retaliatory measures, we may see gold demand increase again."
The US announced 25% tariffs on goods from Canada and Mexico, and 10% on imports from China, effective Tuesday. Canada will impose a 25% counter-tariff on US goods, while Mexico promised retaliatory actions and Beijing threatened "corresponding countermeasures." Trump has also hinted at tariffs against the European Union, which has vowed to respond.
A global trade war could harm economic growth, necessitate adjustments to global supply chains, and destabilize financial markets. While gold typically benefits from haven demand in such scenarios, currency movements and interest rate expectations are mitigating these pressures.
Some of the impact may already be priced in, given gold's 6% price increase this year, following a 27% rally in 2024. "The strong dollar could pose a short-term challenge for gold," noted Charu Chanana, a strategist at Saxo Capital Markets Pte. "However, the long-term impact of tariffs may weaken the dollar, as prolonged protectionism could erode US economic dominance."
Spot gold prices declined by 0.9% to $2,777.54 per ounce as of 12:04 p.m. in Singapore, following a 1% gain last week. The Bloomberg Dollar Spot Index jumped 1.1%, after a 1% increase last week. Silver, platinum, and palladium also experienced declines of over 1%.