Gold is up slightly today by 0.2%, reclaiming the $2,640 per ounce level after two consecutive days of declines.
Gold has been under severe downward pressure since Donald Trump won a second term in the White House, which has given strength to the US dollar amid anticipation of protectionist trade policies against imports, especially from China.
As Trump’s inauguration approaches on January 20, more plans are emerging about the features of this policy, which appears to be more aggressive than before. Sources told The Washington Post that Trump’s aides are looking into the possibility of imposing tariffs on all countries, except for imports of critical goods.
This escalating trade aggression could have severe consequences for the global economy, disrupt international trade, and raise prices for US consumers on a wide range, according to The Post. Trump, in response to The Post’s article, said that he would not back down from imposing these tariffs. This also comes after he announced his intention to impose huge tariffs on China, the European Union, Canada and Mexico.
While experts’ expectations vary regarding the potential impact of these tariffs on inflation in the US, the Treasury market is pricing in a year in which the pace of interest rate cuts may be slow, which is keeping gold under pressure. The extremely cautious tone from Federal Reserve officials, led by Jerome Powell, has also heightened concerns about the higher-for-longer rates.
The yield on the 10-year Treasury bond remains near its highest level since last May at 4.62%, and the probability of a rate cut at its meeting this month is no more than 7%, and less than 40% for a cut in March, according to CME FedWatch Tool.
Geopolitically, with Trump back, the Middle East could be set for more historic changes. According to Axios, Trump’s advisors believe that the maximum pressure strategy may not be effective against Iran in light of the progress in its nuclear program, which makes the possibility of military action more likely. According to the site, an Israeli strike with US support may be launched against Iranian nuclear facilities, or Trump himself may order it to be carried out.
This strike, if it succeeds in neutralizing the nuclear program, may be the final blow to Iran, as it will come at the most difficult time possible. Its ally in Lebanon, Hezbollah, is now besieged with the loss of the supply route through Syria, which in turn was a vital stronghold for its arms. Add to that the weakness of the Iranian economy and the deterioration of the energy supply infrastructure, which may in turn be hit with any Iranian escalation, which will deepen its crises.
However, although these potential developments may seem like an escalation that would raise the state of uncertainty, which may provide support for safe havens, most notably gold, these gains that the yellow metal may reap may be fragile. This is because they will come with Iran’s ability to carry out an escalation that would harm economic interests in the region weakening more than ever, and in contrast to the intense hostility, supported by military capabilities, that Israel and Trump carry.
