Gold prices rose as the USD weakened, amid investors considering the White House's next steps on tariffs, after the US Supreme Court rejected the broad global tax package issued by President Donald Trump.
The Supreme Court believes that Mr. Trump has exceeded his authority when citing the federal emergency law to impose reciprocal tariffs globally as well as targeted import tariffs. This ruling makes a large part of the tariffs that Mr. Trump implemented in his second term invalid. According to Mr. Bart Melek, Director of Global Goods Strategy, this means that the US Treasury Department may have to repay taxes collected from importers, while reducing future budget revenue.
This will put great pressure on the budget, increasing speculation that monetary instruments may have to be used to finance the government," Melek said. "This is a factor that benefits gold prices, because such measures are likely to keep interest rates low. Gold usually performs well in a low interest rate environment because it does not yield yields.
The USD at one point fell by 0.3%, thereby pushing gold prices up by a maximum of 1.6%, because this precious metal is valued in the greenback.
The market is realizing that this will be a very complex legal battle, which could last many years," said Ben McMillan of IDX Advisors, noting that the Supreme Court ruling does not specify details about tax refunds - "Everything is being pushed down to lower courts. That means there will be a series of individual lawsuits.
At a press conference on Friday, Mr. Trump said he would use alternative measures to compensate for rejected tariffs. Although the US Constitution grants tax authority to Congress, the legislature has partially authorized the executive branch to pass various laws.
Mr. Trump said he would impose a 10% global tariff under Section 122, adding to the current tariffs. He also affirmed that all tariffs for national security reasons under Section 232 and existing tariffs under Section 301 remain in effect.
Earlier on Friday, gold prices fluctuated when Russia said that the country's central bank sold gold from reserves in January, marking the first decrease since October. Central banks' gold buying activity is the key driver in the upward momentum of gold prices over the past three years, creating a solid price base for the market. The release of 300,000 ounces of gold to the open market has raised concerns about the possibility of gold undergoing downward pressure in the short term, especially in the context of increasing volatility after the historic plunge at the end of January.
However, the factors that previously pushed gold prices above 5,500 USD/ounce are generally still there, including the trend of moving away from government bonds and currencies, along with geopolitical risks. The latest moves by the US related to Iran are increasing global instability, thereby strengthening the attractiveness of safe-haven assets such as gold.
The US military is deploying large-scale forces in the Middle East, while Mr. Trump declared that Iran has only 10-15 days left to reach an agreement on its nuclear program. A large-scale US attack on the Islamic Republic of Iran - where leaders are concerned about regime stability after widespread instability could plunge Washington into its third war in the region since 1991.
Banks such as BNP Paribas SA and Goldman Sachs Group Inc. said they expect gold prices to resume the upward trend. Central banks, the important driving force behind gold price increases, are still actively increasing reserves as a measure to hedge geopolitical and financial risks, according to Goldman analysts Lina Thomas and Daan Struyven, despite high volatility that once curbed buying in December.
In this morning's trading session, spot gold prices rose 1.5% to $5,106.68/ounce. On the other metal market, silver increased sharply by 5.6%, while platinum and palladium also simultaneously went up. The Bloomberg Dollar Spot index, a measure of the strength of the USD, fell 0.2%.
