Gold prices took a sharp dive on Thursday as the U.S. dollar surged and trade tensions escalated following President Donald Trump’s unexpected tariff announcement. The most active April futures contract settled at $2,887.80 per ounce, marking a significant decline of $43.90 (-1.50%). The precious metal briefly hit a two-day low of $2,879 before recovering slightly.
This marks the third instance in recent weeks where gold has experienced a single-session drop of more than $40, with the most recent being a $63 plunge on February 14. The latest selloff has raised concerns about whether gold’s bullish trend is starting to weaken.
U.S. Dollar Strength Weighs on Gold Prices
A strengthening U.S. dollar significantly contributed to golds price decline, as the U.S. Dollar Index (DXY) surged 0.74% to 107.22. The stronger USD made dollar-denominated commodities like gold more expensive for foreign investors, leading to reduced demand for gold.
Market analysts estimate that approximately 50% of golds price drop resulted from U.S. dollar strength, while the remaining decline was driven by direct selling pressure as gold traders adjusted their risk exposure amid economic uncertainty. The gold market selloff highlights the inverse relationship between gold prices and the U.S. dollar, a key factor influencing precious metals trading.
Trump’s Tariff Surprise Sparks Market Volatility
The market reaction was largely driven by President Donald Trump’s sudden decision to impose new tariffs on Canada and Mexico, a move that blindsided investors.
Initially, Trump had delayed the tariffs until April 2, but on Thursday, he accelerated their implementation, announcing that the 25% tariffs on Canadian and Mexican imports would now take effect as early as next Tuesday.
This move is in addition to the 10% tariff on Chinese imports that was implemented earlier this month.
“We cannot allow this scourge to continue harming the USA. Tariffs will remain until it stops or is significantly reduced,” Trump stated on Truth Social.
Mexico and Canada have responded strongly, warning that they may impose retaliatory tariffs on U.S. goods if Trump proceeds with these new trade restrictions.
The latest developments have raised fresh concerns over global economic growth, with analysts warning that prolonged trade tensions could lead to weaker GDP expansion and rising inflation across North America.
What’s Next? Focus on Inflation Data & Fed Rate Decisions
The next key market event is the Personal Consumption Expenditures (PCE) Price Index report, scheduled for release tomorrow. The PCE is the Federal Reserve’s preferred measure of inflation, making it a crucial indicator for interest rate expectations.
Key Expectations for January’s PCE Report:
- Month-over-month: Expected to increase 0.3%
- Year-over-year: Forecast to rise 2.5%
If inflation remains persistently high, the Federal Reserve may be forced to keep interest rates steady for longer, disappointing investors who were anticipating potential rate cuts in the coming months.
Market Outlook: Will Gold Rebound or Continue to Fall?
Despite the current pullback, many analysts believe gold remains in a long-term bullish trend due to ongoing economic uncertainty and inflationary pressures.
However, if the U.S. dollar continues to strengthen and inflation remains high, the Federal Reserve’s hawkish stance could further weigh on gold prices.
Gold Price Key Levels to Watch:
- Resistance: $2,900 and $2,950
- Support: $2,879 (recent low) and $2,850 (major support level)
A break below $2,850 could trigger further selling pressure, while a move back above $2,920 could signal renewed buying interest.
Conclusion
Gold prices have been under pressure due to a stronger U.S. dollar and Trump’s aggressive tariff policies, which have reignited trade war concerns.
With inflation data due tomorrow and interest rate expectations in focus, gold traders will be closely monitoring the Federal Reserve’s next moves to gauge the metal’s future direction.
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