Gold prices are sideways as traders consider the uncertainties surrounding US import tariff policies and the prospect of the US Federal Reserve not cutting interest rates soon.
On Wednesday, gold prices fluctuated around the 5,150 USD/ounce mark, after falling 1.6% in the previous session, ending a four-day consecutive rally. Boston Fed Chairman Susan Collins said on Tuesday that interest rates are likely to remain unchanged "for a while", as recent economic data shows that the US labor market is improving.
Minutes of the Fed's January policy meeting, released earlier this month, show that US central bank officials are cautious about interest rate cuts. Higher borrowing costs are often a disadvantage for precious metals such as gold, which does not yield yields.
Gold prices have now found a foothold above the 5,000 USD/ounce mark, after recovering more than half of the decline recorded in the historic two-day downturn earlier this month. The upward momentum in recent sessions has been driven by instability in US trade policy and increased geopolitical tensions in the Middle East, where Washington has deployed its largest military force since 2003. Negotiations with Iran are expected to resume later this week.
Meanwhile, the widespread 10% import tariff proposed by President Donald Trump officially took effect from Tuesday, after the US Supreme Court rejected the previous reciprocal tax mechanism. Although Mr. Trump later threatened to raise the tariff to 15%, he has not yet issued an official directive.
In a move that could pave the way for additional tariffs, the US administration is preparing to conduct a series of national security investigations to assess the impact of some imported goods such as batteries and industrial chemicals. In parallel, some importers have begun to request tax refunds from the government.
This could create huge impacts on the US budget deficit, the USD and the Treasury bond market," said David Wilson, Commodity Strategy Director at BNP Paribas SA, when referring to the possibility of tax refunds.
Concerns about increased public debt have contributed to promoting a trend called "devaluation trading", when investors withdraw from bonds and currencies to turn to tangible assets such as gold. This is also the main driving force behind the multi-year gold price increase cycle, before the market suddenly adjusted sharply at the end of January.
Traders are currently focusing their attention on Mr. Trump's State of the Union address, scheduled for Tuesday evening in Washington. According to reporters attending the working lunch with the President ahead of the event, Mr. Trump will present an idea considered quite unusual about tax cuts for individuals and businesses.
As of 9:03 am Singapore time, gold prices edged up 0.3% to $5.24/ounce. Silver prices rose 0.9% to $87.93/ounce. Platinum went up, while palladium was almost flat. The Bloomberg Dollar Spot index, a measure of the strength of the USD, remained unchanged after a slight increase in the previous session.
