- The US Central Bank will conclude its meeting later on Wednesday.
- The US president called on the Fed to keep cutting interest rates.
- Trump is set to impose tariffs on Canada and Mexico on Saturday.
Gold prices remained steady after Tuesday’s rally as market participants anticipated the US Federal Reserve policy decision. The rebound in the previous session came as investors absorbed Trump’s recent comments on tariffs.
The US Central Bank will conclude its meeting later on Wednesday. According to economists, policymakers will likely vote to keep rates at current levels. The shift to pauses comes after a period of upbeat US economic data that forced the central bank to take on a cautious tone. Additionally, analysts have been predicting robust US growth and higher inflation since Trump’s election win. As a result, policymakers downgraded their forecast for rate cuts in 2025.
However, a strange thing happened last week when the US president called on the Federal Reserve to keep cutting interest rates. Such an outcome will support gold prices as the non-yielding yellow metal becomes more attractive with low borrowing costs.
However, Trump is set to impose tariffs on Canada and Mexico on Saturday. Moreover, the president said on Monday that he would impose tariffs on specific goods to increase protection in the US. All these developments will increase demand for local goods, leading to a faster economic expansion.
At the same time, the dollar will rally, making gold expensive for foreign buyers. On monetary policy, the Fed will find it difficult to lower borrowing costs, keeping them at restrictive levels. This will reduce the appeal for non-yielding gold.
Gold bullish bets (Source: CFTC)
However, a Reuters poll revealed that economists expect bullion to have a strong year due to economic uncertainty and inflation concerns. Although Trump might be good for the economy, all this remains just a possibility. His tariffs might cause trade wars, hurting the global economy and increasing demand for safe-haven gold.
At the same time, although tariffs will boost the US economy, they will hurt other major economies like Canada, the Eurozone and China, raising concerns and pushing investors to safer assets. On the other hand, gold is traditionally a store of wealth amid high inflation. Therefore, if price pressures rise under Trump’s administration, demand for gold will increase.
Market participants will keep monitoring US political and economic developments and Fed policymaker remarks for clues on the future.
