- Trump implemented a 25% tariff on Canada and Mexico, igniting trade wars.
- The wave of trade wars has raised uncertainty about the global economy.
- Recent economic data from the US has shown some soft spots, raising expectations for Fed rate cuts.
Gold prices extended gains on Wednesday after rallying nearly 1% in the previous session amid trade war uncertainty. At the same time, the dollar weakened, making gold cheaper for foreign buyers. Meanwhile, market participants look forward to US employment figures for clues on future Fed rate cuts.
Spot gold (Source: Bloomberg)
On Tuesday, investors scrambled for safety in the yellow metal after Trump implemented a 25% tariff on Canada and Mexico, igniting trade wars. Canada responded immediately with a 25% tariff on US imports. At the same time, Trump added a 10% tariff on Chinese goods, causing another response. China plans to impose a similar tariff on US goods starting Monday next week.
The wave of trade wars has raised uncertainty about the global economy. The US economy will also suffer the impacts of these wars. Moreover, the US president will not stop anytime soon. He has promised to impose more tariffs in April that will affect more countries. Gold is considered a haven in times of economic uncertainty. Moreover, economists believe Trump’s tariffs will lead to a spike in US inflation. Therefore, investors will buy more gold as a store of wealth. Thus, the recent rally will likely continue.
Meanwhile, recent economic data from the US has shown some soft spots, raising expectations for Fed rate cuts. Jobless claims are at a two-year high, showing softer demand for labor. Meanwhile, consumer spending has dropped more than expected. Consequently, traders expect the Fed to cut in June and September. However, this will keep changing with incoming data.
Market participants eagerly await the US nonfarm payrolls report, which is due on Friday. Economists expect a slight increase in job growth from 143,000 to 159,000. Meanwhile, the unemployment rate might hold steady at 4.0%. An upbeat report will ease fears about a slowdown. As a result, rate-cut bets will drop. On the other hand, a softer-than-expected report will boost gold prices by increasing Fed rate cut bets.
Elsewhere, there was support for gold from China, a major consumer. Reports revealed more stimulus plans to support the fragile economy. At the same time, the stimulus will cushion the economy against the impacts of Trump’s tariffs.
