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Gold prices fell sharply in New York trading on Thursday, with the most active April futures contract on the COMEX settling at $2,887.80 per ounce, a decline of $43.90 or 1.50%. The precious metal hit a two-day low of $2,879 during the session before staging a modest recovery. This drop marks the third significant single-day decline in recent weeks, following a $63 plunge on February 14 and another notable selloff earlier this month. The combination of a strengthening U.S. dollar and market reactions to unexpected tariff announcements from President Donald Trump were key drivers of the downturn.
Dollar Strength Weighs on Gold
The U.S. dollar index (DXY) rose 0.74% to 107.22, exerting downward pressure on gold prices. Analysts estimate that approximately half of the day’s decline in gold can be attributed to the dollar’s appreciation, which typically reduces demand for dollar-denominated commodities like gold by making them more expensive for foreign buyers. The remaining pressure stemmed from direct selling in the gold market, reflecting shifting investor sentiment amid evolving trade policy developments.
Trump’s Tariff Announcements Spark Market Volatility
The selloff followed President Trump’s abrupt announcement of new trade tariffs, reversing earlier indications of a delayed timeline. Initially, Trump had pledged to postpone tariffs on Canada and Mexico until April 2, 2025, while a 10% tariff on Chinese imports was implemented earlier in March. However, in a post on Truth Social on Thursday, the President declared that 25% tariffs on goods from Canada and Mexico would take effect next Tuesday, March 11, 2025, citing the need to curb unspecified economic harm to the U.S. “We cannot allow this scourge to continue to harm the USA. Tariffs would be imposed until it stops, or is seriously limited,” Trump wrote.This policy shift caught markets off guard, as investors had recently increased allocations to safe-haven assets like gold to hedge against trade-related uncertainties. Counterintuitively, the tariff news triggered a selloff in gold rather than a rally, likely due to the dollar’s concurrent strengthening and expectations of broader economic implications.
Retaliatory Risks and Economic Outlook
Canada and Mexico swiftly signaled their intent to impose reciprocal tariffs on U.S. exports if the threatened measures materialize. Economic analysts warn that an escalating trade war among North American partners could disrupt supply chains, slow regional GDP growth, and stoke inflationary pressures across the U.S., Canada, and Mexico. The U.S. imports significant volumes of energy, automotive parts, and agricultural goods from its neighbors, making retaliatory measures a potential catalyst for higher consumer prices.Focus Shifts to PCE Inflation DataMarket participants are now turning their attention to Friday’s release of the Personal Consumption Expenditures (PCE) Price Index for January 2025, the Federal Reserve’s preferred inflation gauge. According to FactSet consensus estimates, headline PCE inflation is projected to rise by 0.3% month-over-month and 2.5% year-over-year. Core PCE, which excludes volatile food and energy prices, is also expected to reflect persistent inflationary pressures. These figures suggest inflation remains above the Fed’s 2% target, reducing the likelihood of near-term rate cuts. Many investors had anticipated a pivot to monetary easing in 2025, but stubbornly high inflation may compel the Federal Reserve to maintain the current fed funds rate range (assumed to be elevated based on recent trends, e.g., 4.25%–4.50%, pending further 2025 developments).
Technical and Market Implications
Gold’s decline below $2,900 raises questions about its near-term trajectory. The metal has struggled to sustain momentum above the $2,900–$3,000 range in recent sessions, with support levels near $2,850 now in focus. A stronger dollar and rising U.S. Treasury yields—potentially bolstered by tariff-induced inflation expectations—could further pressure gold, which offers no yield. Conversely, heightened geopolitical and trade tensions may reinforce its long-term appeal as a safe-haven asset.
Conclusion
Thursday’s gold price drop underscores the complex interplay between macroeconomic forces and policy shocks. While Trump’s tariff escalation has bolstered the dollar, it has also introduced uncertainty that could eventually support gold if economic fallout intensifies. Investors await PCE data for further clues on the Federal Reserve’s stance, with implications for both gold and broader financial markets.
Anish Jagdish Parashar
Indirect tax india research
Disclaimer: Content above are personal views of author.For investment purposes consult your financial advisor.
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