Among President Trump’s key campaign promises was to impose blanket tariffs of 10% to 20% on all imports, and up to 60% on imports from economic rival China.
Import restrictions strengthen the dollar, but have an inverse relationship with gold. In other words, when the dollar rises, metal prices generally fall.
Analysts said trade tariffs would also increase inflationary pressures as imports become more expensive. This pressure is exacerbated by President Trump’s plan to cut taxes and deport illegal immigrants, which would reduce the supply of cheap labor.
Nitin Agarwal, director of investment research and advisory at Client Associates, said rising inflation could force the Federal Reserve to slow or even pause its rate cuts. This does not bode well for gold, as its recent bull run was driven by expectations of aggressive rate cuts from the Fed.
Gold is seen as an important hedge against inflation, but rising lending rates make non-yielding bullion less attractive.
Gold also has an inverse relationship with U.S. bond yields. Like the dollar, the 10-year Treasury yield also rose to its highest level since July following early election results. It rose by 0.16 basis points to 4.44%.
Shrisha Acharya, vice president of Anand Rati Global Finance, said: “President Trump’s inauguration, coupled with the possibility that Republicans will take control of the US Congress, is expected to increase deficit spending, inflation risks, and the possibility of tax cuts. “This could cause yields to rise sharply,” he said. Based on precedent, if Treasury yields achieve their rising pace, gold rates will decelerate.
