- Gold prices pulled back on Wednesday amid optimism of a likely US-China trade deal.
- Gold gained over 2% in the previous session after Trump announced new tariffs.
- Traders are pricing a 30% chance of a Fed rate cut in June.
Gold fell over 1% on Wednesday after reports of a likely meeting between China and the US on Saturday. The talks have raised hopes that the two countries will finally reach an agreement to end the trade war. Meanwhile, market participants are preparing for the outcome of the FOMC policy meeting.
Gold (Source: Bloomberg)
Gold prices pulled back on Wednesday amid optimism of a likely trade deal between China and the US. Since the start of April, Trump’s tariffs have rocked financial markets. At the same time, the trade war between China and the US has clouded the outlook for global growth. This uncertainty has allowed gold to make several record highs. Demand for the yellow metal soars with uncertainty. Therefore, a de-escalation in trade tensions reduces demand and hurts prices.
However, gold gained over 2% in the previous session after Trump announced new tariffs on pharmaceuticals. Furthermore, the US president had announced a 100% tariff on foreign movies on Sunday. Although trade tensions have been easing, Trump is not stopping his campaign. Therefore, the premium on gold will likely remain.
Last week, gold fell as the dollar gained on easing trade tensions. Trump gave a good report on the progress on trade negotiations. He even indicated that the US would soon sign deals with Japan, India and South Korea. The dollar strengthened, making gold more expensive for foreign buyers.
Moreover, data on Friday revealed that the US economy added 177,000 new jobs in April compared to the forecast of 138,000. Meanwhile, the unemployment rate remained steady at 4.2%. The Upbeat report weighed on gold because it eased recession worries.
Initially, market participants were worried about the state of the economy after Trump’s tariffs. However, it has remained resilient. A separate report on Monday showed further expansion in the services sector.
The resilient economy has lowered expectations for Fed rate cuts, further weighing on gold. The non-yielding metal performs poorly when interest rates remain elevated. The Fed will meet later in the day and will likely hold interest rates. However, traders will focus on the messaging during the meeting for clues on future moves. At the moment, traders are pricing a 30% chance of a cut in June. This means the Fed’s next move will likely come in July.
