Gold prices were higher on the first trading day of March on Monday as the dollar slipped against a basket of major currencies.
A weaker dollar makes commodities priced in the greenback cheaper for overseas buyers.
Uncertainty over US trade tariffs and Russia-Ukraine peace talks also supported demand for safe-haven assets such as gold and silver on Monday.
At the time of writing, the April gold contract on COMEX was at $2,880.31 per ounce, up 1.1%.
The May silver contract on COMEX was up 1.3% at $31.915 an ounce.
“Broad sentiment (in gold) remains bullish and expects to continue the momentum,” analysts at Geojit Financial Services said.
Gold price and tariff uncertainty
In a week marked by escalating trade tensions, US President Donald Trump declared his intent to impose an additional 10% tariff on Chinese goods last week.
This move further strained the already delicate trade relationship between the two economic giants. Trump also reaffirmed his plan to implement 25% tariffs on goods from Mexico and Canada, adhering to the previously announced timeline.
These tariff announcements sent shockwaves through global markets, as investors grappled with the potential ramifications of a full-blown trade war.
The business community expressed concerns about the impact of these tariffs on supply chains, consumer prices, and overall economic growth.
However, in a surprising development on Sunday, US Commerce Secretary Howard Lutnick introduced an element of uncertainty into the situation.
He stated that Trump would make a final decision on the precise tariff levels on Tuesday.
This announcement left businesses and policymakers in a state of suspense, as they awaited the President’s final determination.
Haresh Menghani, editor at FXstreet, said in a report:
Growing market worries about the potential economic fallout from US President Donald Trump’s trade tariffs and geopolitical risks turn out to be other factors that benefit the safe-haven gold price.
Meanwhile, the collapse of discussions between Ukrainian President Volodymyr Zelenskyy and Trump has reduced the likelihood of a Russia-Ukraine peace agreement.
This has raised fears of extended geopolitical instability, and increased safe-haven demand.
US Fed and economic data
US consumer sentiment experienced its first decline in almost two years, decreasing by 0.2% in January, according to data released on Friday.
In line with this, the Atlanta Federal Reserve has adjusted its projection for the US economy’s annualised growth rate in the first quarter of 2025 to 1.5%, down from 2.3% in the previous quarter.
Market participants are pricing in the possibility of the Federal Reserve resuming interest rate cuts as early as the June policy meeting and continuing to lower borrowing costs in September, according to the CME Group’s FedWatch Tool.
“Traders are pricing in the possibility that the Fed will cut interest rates by a quarter of a percentage point twice by the end of this year amid signs of deteriorating consumer sentiment,” Menghani said.
The Personal Consumption Expenditures (PCE) Price Index, as reported by the US Bureau of Economic Analysis on Friday, showed a 0.3% increase in January and a 2.5% increase over the past twelve months.
This 2.5% increase is slightly down from December’s 2.6% figure. The data remains Fed’s preferred gauge of inflation in the country.
Gold price: further correction potential
Analysts at Commerzbank AG believe that gold prices have the potential to correct further from record highs of $2,974 an ounce hit in February.
“The overdue correction in the gold price now appears to be underway,” Carsten Fritsch, commodity analyst at Commerzbank said.
On Friday, gold prices had fallen to around $2,850 an ounce, falling more than $100 per ounce from its record peaks.
“It is worth noting that the current price decline has occurred despite further tariff announcements by US President Trump and a marked increase in Fed rate cut expectations,” Fritsch said.
We see further correction potential, as the previous price increase was driven almost exclusively by stronger demand for gold as a safe haven and the need for this should now largely be covered.
Recent data released by the Hong Kong Statistics Department, which tracks gold deliveries from Hong Kong to mainland China, paints a clear picture of the current state of the gold market.
The numbers indicate a marked weakness in demand for gold in China, traditionally a major driver of global gold consumption.
This subdued demand from China suggests that the appetite for gold is similarly lackluster in other regions outside of Hong Kong.
The implications of this trend are significant for the global gold market, as a sustained weakness in Chinese demand could exert downward pressure on gold prices.
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