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Gold declines as dollar’s strength outweighs haven demand
By Sybilla Gross / Bloomberg
03 Feb 2025, 12:57 pmUpdated – 04:04 pm
(Feb 3): Gold fell after US President Donald Trump imposed tariffs on imports from Canada, Mexico and China, with a surging dollar outweighing haven demand as the world braces for trade wars.
Bullion dipped below US$2,790 (RM12,516) a dollar, although was still fairly close to a record high reached last Friday. A gauge of the US currency jumped the most in almost three months on an intraday basis. The inflationary impact of tariffs between the world’s biggest economies may keep borrowing costs elevated, a headwind for gold that doesn’t offer any interest, while a rising dollar makes it pricier for many buyers.
“Those dynamics are overwhelming haven demand for now,” said Christopher Wong, a strategist at Oversea-Chinese Banking Corp (OCBC), adding that an uptick in price pressures may impact the Federal Reserve’s easing cycle. “But if trade tensions intensify with more tit-for-tat measures, then we may start to see demand for gold pick up again.”
The US announced tariffs of 25% on goods from Canada and Mexico, and 10% on those from China, set to take effect on Tuesday. Canadian energy imports will face a 10% levy. Ottawa unveiled a 25% counter-tariff on US goods, Mexico pledged retaliatory actions, and Beijing issued a statement vowing “corresponding countermeasures”. Trump has also threatened tariffs against the European Union, which said it would respond firmly.
A global trade war would be a major headwind for growth, force a reorganisation of global supply chains, and threatens to roil financial markets. While gold would typically benefit from haven demand in such a scenario, moves in the dollar and the interest-rate outlook are offsetting those pressures. Some of the impact may already be priced in, with the metal rising almost 6% so far this year, following a 27% rally in 2024.
Trade war fears have already jolted precious metals markets, with US prices of gold and silver surging above international benchmarks in recent weeks — causing dealers and traders to rush huge volumes of the metals into the US before any tariffs are imposed. The chaos has also led to a spike in lease rates for gold and silver — the return that holders of bullion in London’s vaults can get by loaning their metal out to other buyers on a short-term basis.
Spot gold had declined 0.4% to US$2,788.50 an ounce as of 7.04am in London, after climbing 1% last week. The Bloomberg Dollar Spot Index rose 0.9%, and was up as much as 1.3 earlier. Silver, platinum and palladium all dropped.
“The strong dollar could be a near-term headwind for gold,” said Charu Chanana, a strategist at Saxo Capital Markets Pte Ltd. “However, the long-run impact of tariffs is likely to be dollar-negative, as long-term trade protectionism could erode US economic dominance.”