Gold rises amid weak dollar
by Samer Hasn, Senior Market Analyst at XS.com
Gold continues its remarkable advance for the third consecutive day, reaching its highest level since October of last year, near $2,764 per ounce.
Gold’s gains come amid the weakness of the US dollar as the market reassesses the future of the upcoming trade war, in addition to the prevailing uncertainty about the future of the global economy with the escalation of this tension and the lack of a near horizon for settling the ongoing wars.
Where the new US President Donald Trump renewed his threats to impose tariffs on China and Europe next February. This is likely to deepen the state of uncertainty in those countries about the ability of their economies to confront this trade war, especially amid the state of weakness that the global economy is suffering from.
Various surveys anticipate this trade escalation and reveal the prevailing state of uncertainty. The ZEW Economic Sentiment index in Germany recorded a weaker-than-expected reading in January. How the report revealed the continued decline in economic expectations due to the ongoing recession, inflationary pressures, weak household spending, and uncertainty about the political and economic reality with the return of Trump. However, European stock indices continued.
Despite the prevailing concerns about tariffs, we still see signs of the possibility of negotiating to prevent a comprehensive trade war around the world. The Chinese foreign ministry said that it seeks to strengthen stable and sustainable relations with the United States, and this was a follow-up to steps described as conciliatory that had appeared during Trump’s inauguration with the presence of the Chinese Vice President. Experts believe that these signs, in addition to Trump’s talk about his hesitation regarding imposing tariffs on all countries, indicate an intention to negotiate to improve trade terms and obtain a suitable deal, in addition to fears of consequences for the United States itself, according to what was reported in Reuters, The Wall Street Journal, and The New York Times. This is what causes the US dollar and Treasury yields to weaken, which opens the way for gold to advance further.
These factors seem to contradict each other, as on the one hand there are concerns about the consequences of tariffs and on the other hand, we see signs of the possibility of negotiating favorable terms for all parties away from onerous tariffs. In any case, we should focus on what Trump does, not what he says.
As for the likely path of monetary policy in the United States, despite what we have talked about, the markets have not changed their expectations about the pace of interest rate cuts this year. The Fed is still not expected to cut rates before next June, according to CME FedWatch Tool figures.
