- Gold has rallied this week as investors sought safety amid tariff uncertainty.
- Gold eased after Trump announced an unexpected trade deal with Japan.
- Top EU officials do not seem confident of a trade deal before August 1.
Gold prices edged lower on Wednesday after news of a trade deal between Japan and the US eased some tariff uncertainty. However, the move was brief, and gold held near the highs reached in the previous session, amid fears of a looming trade war.
Gold has rallied this week as investors sought safety amid tariff uncertainty. The new August 1 deadline is looming, and only a few countries have signed trade deals with the US. This means that tariffs could increase significantly for major economies next month.
Gold (Source: Bloomberg)
However, there was some optimism after Trump announced an unexpected trade deal with Japan. Gold has eased each time there has been a trade deal. For weeks, the US and Japan have engaged in trade talks that have yielded little progress. Therefore, there was much uncertainty over whether the two could strike a deal before the deadline. The news also raised hopes of more similar deals before August.
Moreover, traders were optimistic about reports that the US would meet with China to discuss an extension of their talks. If Trump is willing to extend talks beyond the new deadline, he might do the same for other countries.
Nevertheless, market optimism lasted only a moment, and gold barely pulled back from its highs. Traders are concerned that some economies, such as Brazil and the EU, are preparing for retaliation if the tariffs take effect. Trump threatened to impose a 50% tariff on Brazil. The country responded immediately, saying it would retaliate.
Meanwhile, top officials in the Eurozone do not seem confident of a trade deal before August 1. Meanwhile, Trump has threatened a 30% reciprocal tariff on EU imports. A response from the Eurozone could spark a trade war that would affect risk appetite in financial markets. This would boost gold, which is considered a haven in times of uncertainty.
Meanwhile, tensions between the government and Powell eased slightly. Trump has been calling on the Fed Chair to resign in recent days, which has raised concerns about the central bank’s independence. Powell has kept interest rates unchanged, unwilling to lower them as Trump wanted. He believes tariffs might boost inflation. Some of his fears were confirmed last week when the US released hot inflation numbers. As a result, rate cut expectations eased further, dragging gold lower.
