- Gold rallied after the US announced new steel and aluminum import tariffs.
- Fed’s Powell noted that the US economy remained resilient.
- Market participants are looking forward to the US CPI report.
On Tuesday, gold prices reached an all-time high as investors scrambled for safety amid tariff uncertainty. Trump announced a 25% tariff on steel and aluminum imports, increasing fears of trade wars. However, bullion retreated after Powell’s hawkish speech. Moreover, market participants are awaiting the crucial US consumer inflation figures for more clues on the outlook for Fed rate cuts.
Spot gold (Source: Bloomberg)
On Monday, gold rallied after the US announced new tariffs on steel and aluminum imports that will affect several countries. As a result, top officials in the Eurozone, Canada, and other nations vowed to respond appropriately. Counter-tariffs would mean trade wars, which would impact the global economy. Gold is a traditional haven in times of economic uncertainty. Therefore, demand for the yellow metal soared.
However, on the flip side, tariffs might benefit the US economy. Local production and consumption will increase, boosting the economy. At the same time, price pressures will increase. Although gold is a good store for wealth amid high inflation, it has no yield. High inflation will likely force the Fed to keep borrowing costs high, increasing the opportunity cost of holding gold.
Elsewhere, market participants paid attention to Powell’s speech on Tuesday, which lowered expectations for Fed rate cuts. Powell noted that the US economy remained resilient. Therefore, there was no rush to lower interest rates. He mentioned that the central bank is prepared to cut rates if labor market or inflation data weakens.
On Friday, the US released its nonfarm payroll report, revealing some weakness in the labor sector. The economy added 143,000 jobs, missing estimates of 169,000. This caused a temporary surge in gold prices. However, the report also showed that the unemployment rate unexpectedly dropped, indicating continued resilience.
Market participants are now looking forward to the US CPI report to see whether the Fed’s tone will change. The previous report showed softer-than-expected core inflation, which boosted rate-cut bets. Economists expect consumer inflation to increase by 0.3% in January. Meanwhile, the annual figure might increase by 2.9%. Upbeat numbers will hurt gold by reducing expectations for rate cuts. On the other hand, a cooler-than-expected reading will boost rate-cut bets and continue the rally in gold.
