Gold prices edged lower on Wednesday, pressured by a stronger US dollar and rising Treasury yields, as markets also kept an eye on the potential impact of new US tariffs. Spot gold fell 0.3% to $2,909.86 an ounce, following a nearly 1% rise on Tuesday. US gold futures were steady at $2,920.70.
The rebound in the benchmark 10-year US Treasury yield, which had dropped to an over four-month low in the previous session, made non-yielding gold less attractive. The dollar index also firmed, adding additional pressure on the yellow metal.
Market Reaction to Recent Rally
Ilya Spivak, head of global macro at Tastylive, pointed out that the modest decline in gold prices during the Asia-Pacific trading session likely reflects a market digestion of the sharp rally in the previous day, rather than any new developments putting significant pressure on gold prices.
US Tariffs and Economic Uncertainty
Adding to the market’s cautious sentiment, new US tariffs took effect on Tuesday, including a 25% tariff on imports from Mexico and Canada and a doubling of tariffs on Chinese goods to 20%. These trade measures, part of President Donald Trump’s policy, have led to retaliatory tariffs from China and Canada, with Mexico expected to respond soon. The ongoing trade tensions are fueling fears of economic disruption, which could potentially push gold prices higher as investors seek safe-haven assets.
Impact on Inflation and Federal Reserve Policy
The economic uncertainty sparked by these tariff policies has been a key factor in the rise of gold, with the metal gaining over 10% so far this year. Federal Reserve Bank of New York President John Williams noted that the tariffs are likely to drive inflation higher, but indicated that the Fed’s current interest rate policy remains appropriate and does not need adjustment for now.
Higher inflation expectations could make gold less attractive, as the metal does not generate yields, and it could prompt the Federal Reserve to keep interest rates higher for longer.
Conclusion
With the market digesting the impact of tariffs and inflation concerns, investors are now awaiting the ADP employment report later in the day, followed by the US nonfarm payrolls report on Friday, which could provide further insights into the state of the US economy and influence gold’s direction.