- Trump’s aggressive tariff stance might plunge the US economy into a recession.
- A 25% tariff on steel and aluminum imports started on Wednesday.
- Market participants are awaiting the crucial US consumer inflation report.
Gold prices extended gains on Wednesday as US recession fears sent investors from risky to safe-haven assets. A new tariff on steel and aluminum imports ignited a trade war between the US and the Eurozone. Meanwhile, there was some caution ahead of a crucial US inflation report.
Spot gold (Source: Bloomberg)
Recent tariff developments in the US have shown an aggressive stance that might plunge the US economy into a recession. Last week, Trump imposed tariffs on China, Canada and Mexico. These countries were ready to respond with counter-tariffs, and some, like China, did. However, Trump suspended tariffs on Canada and Mexico, giving the two countries another month.
Furthermore, a 25% tariff on steel and aluminum imports started on Wednesday, igniting an immediate response from Europe. Trade wars will eventually reduce trade between the US and its partners. If this happens, the US economy will suffer, with experts predicting a likely recession.
In an interview on Sunday, Trump avoided predicting a US recession. This led some to believe he is okay with whatever outcome as long as his goals are met. Consequently, panic has sent investors to buy gold. At the same time, a decline in the US dollar has made gold cheaper for foreign buyers.
Meanwhile, market participants are awaiting the crucial US consumer inflation report. Estimates show that inflation increased by 0.3% in February, lower than the previous reading of 0.5%. Meanwhile, the annual figure might increase by 2.9%, easing from the previous 3.0%. Softer-than-expected numbers will raise expectations for Fed rate cuts, further weighing on the dollar. On the other hand, an upbeat report might give the greenback some relief.
Recent economic data has shown a slowdown in the US. Employment numbers on Friday missed forecasts. At the same time, unemployment unexpectedly increased. Consequently, traders expect the Fed to implement at least three rate cuts this year. More poor data might push this up to four rate cuts. Gold does well when interest rates are low.
Elsewhere, there was downward pressure on the yellow metal as Ukraine and Russia approached a ceasefire deal. Reports revealed that Ukraine is ready to discuss a one-month ceasefire deal. Peace would hurt gold by reducing economic uncertainty and increasing risk appetite.
