Gold set for first monthly gain in 4 months on Trump tariff threat, Fed cut hopes

Gold prices rose on Friday, heading towards their first monthly gain since January on increased safe-haven demand, after US President Donald Trump vowed to levy tariffs on all Mexican imports, ratcheting up concerns of a global economic slowdown.

The new threat of tariffs on Mexico, coupled with a string of soggy economic data from the United States this month and the long-drawn Sino-US trade war, also translated into increased bets that the US Federal Reserve could cut interest rates this year.

Spot gold was up 0.2 per cent at $1,290.68 per ounce at 0322 GMT. It has risen about 0.6 per cent so far this month. The metal is also on track for a second consecutive weekly gain, up about 0.4 per cent over the week. US gold futures rose 0.3 per cent to $1,290.50 an ounce.

An infuriated Trump on Thursday vowed to impose a tariff on all goods coming from Mexico starting at 5 per cent and ratcheting higher until the flow of illegal immigrants into the United States ceases.

Asian shares and sovereign bonds sank on the news as investors feared the move risked tipping the United States, and maybe the whole world, into recession. “Donald Trump's (threat) about US tariffs on Mexico, sparked some fears in the market. And if the whole US and China negotiation is any example this can drag much longer,” said David Song, an analyst at DailyFX.

“With this kind of push from the Trump administration we will see whether or not the Fed will continue to have that flexibility to retain its wait and see approach.” Lower interest rates would support gold since it reduces the opportunity cost of holding the non-yielding asset.

Overnight, data showed that US inflation was much weaker than initially thought in the first quarter amid a sharp slowdown in domestic demand, which could cast doubts on the Fed's view that the benign price pressures were largely because of temporary factors.

Keeping gold in check, however, the dollar index was on track for a 0.5 per cent gain this week supported by weakness in peers such as the euro and sterling, and the US currency's own status as a safe-haven in times of market and economic troubles.

“Over the near term, a strong dollar will weigh down on commodities in general,” said Heng Koon How, head of markets strategy, United Overseas Bank. “But our long term view is that gold will recover to $1,450 an ounce by middle of 2020 as safe haven in-flows and portfolio diversification needs increase to gold's advantage.”

Elsewhere, silver edged 0.1 per cent lower to $14.49 per ounce and was heading for fourth straight monthly loss. Platinum was steady at $792.14 per ounce, having fallen to its lowest level since Feb. 15 at $784.42 in the previous session. The metal was on track for its biggest monthly loss since Nov. 2015, down 10.8 per cent so far.

Palladium shed 0.4 per cent to $1,362.45 per ounce, not far away from a peak since May 1 at $1,380.75 it touched in the previous session.

COMMENT NOW