- Investors are worried about a likely US recession and a weaker global economy.
- Data on Monday revealed a sharp drop in US consumer confidence.
- Market participants are now looking forward to US inflation data and new US tariffs.
Gold prices extended gains on Wednesday as uncertainty regarding Trump tariffs dampened risk appetite. More tariffs will escalate trade tensions, hurting the global economy. At the same time, investors worry about a spike in inflation due to an increase in the cost of most goods.
The ongoing trade policy changes in the US have shifted the outlook for economic growth and monetary policy. Levies on imported goods have ignited trade wars between the US and its trading partners, threatening the global economy. Moreover, Trump has threatened to impose more tariffs next month. As a result, risk appetite has plunged, sending US equities markets down.
Consumer sentiment (Source: The Conference Board)
On the other hand, gold has rallied to new all-time highs. The yellow metal is considered a haven in times of uncertainty. Investors are worried about a likely US recession and a weaker global economy. Data on Monday revealed a sharp drop in US consumer confidence, further fueling these worries.
At the same time, gold is a store of wealth in times of high inflation. Recent data from the US has shown a surge in inflation expectations. However, gold pulled back from its all-time highs after the FOMC meeting last week. Policymakers kept interest rates unchanged and repeated that there was no rush to cut interest rates.
Although inflation increases the demand for gold, high borrowing costs lower its appeal due to its non-yielding nature. Still, the outlook for rate cuts will keep shifting with incoming data and developments on trade policy. Policymakers are currently projecting just two rate cuts this year.
High inflation will also mean a longer period of high interest rates. Nevertheless, other factors like economic uncertainty will keep supporting prices.
Meanwhile, there was downward pressure on prices after news of progress in the Russia-Ukraine peace talks. Reports indicated that the US had brokered an agreement to pause attacks on sea vessels and energy facilities. This is a huge step towards a ceasefire deal that would halt the war. Such an outcome would lower demand for the safe-haven gold as it would eliminate the fears of an escalation.
Market participants are now looking forward to US inflation data and new US tariffs. Trump has promised more tariffs starting on April 2. However, he said not all countries would suffer the levies.
