- Most investors have taken their money out of risky assets and put them into safer assets.
- Market participants expect Trump to announce new tariffs on Wednesday.
- The US ISM manufacturing PMI came in at 49.0, compared to estimates of 49.5.
Gold prices edged higher on Wednesday after pulling back from a new all-time high hit in the previous session. This week’s rally came amid uncertainty regarding Trump’s tariffs. Gold benefitted from increased demand for safe-haven assets.
Gold (Source: Bloomberg)
Global trade tensions have escalated since Trump started his tariff campaign. At the same time, the outlook for the global economy has darkened, causing widespread worries. As a result, most investors have taken their money out of risky assets and put it into safer assets like gold.
On Wednesday, market participants expect Trump to announce new tariffs on more of his trading partners. The US president has already confirmed a tariff on automobiles. Moreover, traders expect a reciprocal tariff that will affect almost all countries that trade with the US.
These tariffs will escalate trade worries and worsen the outlook for most major economies. As a result, experts believe cash will continue flowing from risky markets like equities into gold and bonds.
Market participants also paid attention to data from the US that painted a grim picture of the economy. Employment figures showed that job vacancies fell, indicating weaker demand. Job openings eased from 7.76 million to 7.57 million. Meanwhile, business activity in the manufacturing sector declined. The ISM manufacturing PMI came in at 49.0, compared to estimates of 49.5.
The downbeat data increased fears that the US economy might tip into a recession soon. Already, demand is slowing down. At the same time, Trump’s tariffs will strain the economy and boost prices. Therefore, analysts are forecasting a period of stagflation. This is a period of poor growth and high inflation.
Notably, on Monday, Goldman Sachs increased the likelihood of a US recession from 20% to 35%. Gold performs well during such periods of economic uncertainty. As a result, gold soared.
However, there are still pockets of strength in the US economy. Data last week revealed that the economy grew by 2.4% in the fourth quarter compared to expectations of a 2.3% growth. Meanwhile, the core PCE price index increased by 0.4% compared to estimates of 0.3%. Still, market participants are more worried about future figures, which might trend lower due to tariffs. Meanwhile, inflation might trend higher.
