Gold has been facing pressure recently, with investors closely monitoring developments in US trade policy and the performance of the US dollar. The precious metal has edged lower as the US President signaled the potential imposition of an additional 10% tariff on countries aligned with the BRICS group of nations.
As the US navigates complex trade deals, gold’s value has fluctuated, shedding light on the delicate balance between geopolitical events and commodity prices. Expert Brokers at Logirium delve into how these shifts are influencing gold prices and what investors should watch for.
Gold’s Reaction to US Trade Tensions
Gold has long been considered a safe haven in times of geopolitical uncertainty. However, the latest fluctuations highlight its sensitivity to changes in global trade dynamics.
Recently, gold lost as much as 0.9%, dipping near $3,306 an ounce after the US President announced the possibility of a 10% tariff on countries aligned with the BRICS nations, Brazil, China, Russia, South Africa, and India. These nations had previously discussed alternatives to the US dollar in cross-border trade, a move that could undermine the dollar’s dominance in global markets.
As Sybilla Gross from Bloomberg notes, the mere threat of new tariffs was enough to give the US dollar a slight boost, diminishing the appeal of gold for some investors. The strengthening of the dollar is often inversely related to the price of gold, as a stronger dollar makes gold more expensive for foreign buyers, thereby reducing demand.
The US Dollar’s Role in the Gold Market
While gold dropped, the US dollar edged up slightly. The Bloomberg Dollar Spot Index rose by 0.1%, signaling a shift in sentiment. Gold, as a non-yielding asset, often benefits when interest rates are low or when inflation expectations rise. However, when the dollar strengthens, it can push gold prices lower.
The US dollar has long been the dominant global currency, particularly in trade. As BRICS countries explore alternatives to trading in dollars, the US administration has made it clear that it will protect the dollar’s position.
In response to the BRICS talks, the US President has previously threatened to impose 100% tariffs on member countries should they attempt to ditch the dollar for trade. These geopolitical tensions add to the volatility surrounding gold, as it becomes increasingly intertwined with global trade politics.
US Trade Talks and the Gold Outlook
The US Treasury Secretary, Scott Bessent, has suggested that tariff deadlines may extend beyond the July 9 deadline, while Commerce Secretary Howard Lutnick confirmed that country-specific tariffs would start on August 1. The US is negotiating multiple trade deals, including with BRICS and other global partners, which will impact both the dollar and gold.
Currently, gold is trading just below $3,310 per ounce, more than 25% higher than at the start of the year. Demand for gold-backed ETFs and central bank purchases have driven its rally. However, as Logirium notes, the dollar’s rise and tariff threats put gold in a delicate spot, with trade deals potentially strengthening the dollar and pressuring gold.
The BRICS Factor: Potential Impacts on Gold
The BRICS group, representing a significant portion of the global economy, is exploring a cross-border payment system that could bypass the US dollar for trade. While this move is still in early stages, it has the potential to disrupt the dollar’s dominance.
If BRICS nations successfully shift away from the dollar, demand for gold could rise as countries diversify their reserves. However, this shift may take years, and short-term market reactions will depend on US trade policies and geopolitical tensions. The threat of new tariffs may pressure gold prices, but long-term trends depend on future trade developments.
Central Banks and Gold Demand
Despite the US dollar’s strength, gold has continued to find strong support from central banks around the world. According to recent data, central banks have significantly increased their purchases of gold in the first half of the year.
This demand is largely driven by concerns over economic uncertainty and potential currency devaluation. In the face of rising global trade tensions, central banks view gold as a reliable store of value that protects against inflation and currency risk.
Investors should keep an eye on central bank purchases, as this could signal continued demand for gold, particularly if trade tensions escalate further. However, as Logirium notes, “The US dollar’s strength and tariff negotiations will remain key factors influencing gold prices. Investors should be prepared for continued volatility as these issues evolve.”
Looking Ahead: What to Watch
Gold faces downward pressure from a stronger US dollar and ongoing trade negotiations, but its long-term appeal remains strong. If BRICS nations move to bypass the dollar, gold could become a more attractive hedge against currency risk. Investors should monitor US trade policy, BRICS developments, and central bank buying patterns, as these factors will influence gold’s direction.
While gold may face short-term challenges, its status as a safe-haven asset positions it well for the future. Pay attention to geopolitical events and trade talks, as they will shape gold’s trajectory in the months ahead.
