Trumps Tariffs Take Dollar Lower, and Move Gold Higher

Gold futures closed lower on the day down $2.10 (-0.07%) but still managed to eke out a gain on the week (+$50.40 1.76%) due to Monday’s and Tuesday’s massive safe-haven demand. Safe haven buying came into the market as a reaction to Tuesday’s steep tariffs implemented on America’s three biggest trading partners Mexico, Canada, and China. Chinese tariffs were doubled from 10% to 20% and the retaliatory 15% tariffs on American goods will begin next week. On Tuesday President Trump imposed costly 25% tariffs on Canada and Mexico, America’s only two neighboring countries and the cost to the U.S. economy is already evident.

The non-farm payroll report came in under expectations at 151,000 new jobs added, slightly lower than the 160,000 estimated by economists polled at Reuters. An unemployment rate of 4.1% showed an unexpected tick up as well. But by far the most damage to the U.S. economy was in the form of a free-falling U.S. dollar.

The U.S. dollar index fell for the fifth consecutive day this week marking a 3.42% decline in the greenback for this week. The nearly 3.5% weekly decline was the largest in over two years. Even more alarming is the monthly chart. The first week in November of 2022 had a greater drop than this week falling by 4%, and the month of November 2022 was the worst month in recent history for the USDX falling by over 5%. This month however has a good chance of dwarfing that record breaking month as it 70% of the way to matching the November 2022 losses with 24 days left in the month.

The changes in trade policy are sure to continue providing a boost for gold prices in the form of a weakening dollar. Another conceivable effect from tariff implementation is the Fed’s policy going forward. A possible continued decline in the U.S. economy has lifted hopes for more rate cuts, now traders expect a total of 76bps being cut this year.

All of this could together have the possibility of converging into a new record high in gold prices, which would mark 13th this year.

Wishing you as always, good trading,