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Fundamental Analysis

Gold Glimmers Near Highs After Trump’s Inauguration Speech

  • Data last week supported at least two Fed rate cuts this year.
  • Trump’s inauguration speech turned out less aggressive than expected.
  • Trump’s policies might increase US inflation, hurting gold.

Gold prices held near a two-month high on Tuesday as the dollar eased after Trump’s inauguration speech. At the same time, the yellow metal benefited from safe-haven inflows amid uncertainty regarding 

Since last week, gold prices have been on an uptrend due to a weak dollar and Treasury yields. Notably, data last week supported at least two Fed rate cuts this year, pausing the recent rally in the greenback. According to data, underlying inflation in the US was softer than expected in December. 

Furthermore, data on Thursday revealed that retail sales came in below estimates, indicating soft consumer spending. These reports increased expectations for Fed rate cuts, reducing the likelihood of no rate cut in 2025. Expectations for a gradual easing cycle had boosted the dollar and Treasury yields.

Previously, data revealed that the economy was more resilient than economists had expected. As a result, policymakers became more cautious. At the same time, expectations for more robust growth under Trump’s administration led to a decline in Fed rate cut expectations. 

However, data last week revived hope for at least two cuts, supporting gold prices. Meanwhile, the focus shifted to Trump’s inauguration speech, which turned out less aggressive than expected. 

Dollar (Source: Bloomberg news)

Dollar (Source: Bloomberg news)

For weeks, markets had expected Trump to immediately impose tariffs on imported goods, which had boosted the dollar. However, during his speech on Monday, there was little on near-term tariffs. Instead, Trump focused on immigration and energy. Consequently, the greenback fell, making gold cheaper for foreign buyers. 

However, there was a shift soon after when Trump spoke to reporters. He noted that his administration might be ready to impose a 25% tariff on Mexico and Canada as soon as February 1st. Meanwhile, although he mentioned a universal tariff, he said the US was not yet ready for it. The sudden shift caused uncertainty about his plans, which supported gold. At the same time, it raised fears of a trade war, further boosting the yellow metal. 

However, the outlook has dimmed slightly since Trump’s policies might increase US inflation. If this happens, the Fed will be forced to keep interest rates at restrictive levels, making the non-yielding metal less attractive. 

Investors will also watch US data for clues on Fed policy. This week, the US will release reports on business activity.