(Bloomberg) -- Gold fell after President Donald Trump imposed tariffs on imports from Canada, Mexico and China, with a surging dollar outweighing haven demand as the world braces for trade wars.
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Bullion traded near $2,780 an ounce, but remained close to a record high reached Friday, while a US currency gauge rose more than 1%. The inflationary impact of tariffs between the world’s biggest economies may keep borrowing costs elevated, a headwind for gold that doesn’t offer any interest, while a rising dollar makes it pricier for many buyers.
“Those dynamics are overwhelming haven demand for now,” said Christopher Wong, a strategist at Oversea-Chinese Banking Corp, adding that an uptick in price pressures may impact the Federal Reserve’s easing cycle. “But if trade tensions intensify with more tit-for-tat measures, then we may start to see demand for gold pick up again.”
The US announced tariffs of 25% on goods from Canada and Mexico, and 10% on those from China, set to take effect Tuesday. Canadian energy imports will face a 10% levy. Ottawa unveiled a 25% counter-tariff on US goods, Mexico pledged retaliatory actions and Beijing issued a statement vowing “corresponding countermeasures.” Trump has also threatened tariffs against the European Union, which said it would respond firmly.
A global trade war would be a major headwind for growth, would force a reorganization of global supply chains, and threatens to roil financial markets across the world. While gold would typically benefit from haven demand in such a scenario, moves in the dollar and the interest-rate outlook are offsetting those pressures. Some of the impact may already be priced in, with the precious metal rising 6% so far this year, touching a record high on Friday, following a 27% rally in 2024.
“The strong dollar could be a near-term headwind for gold,” said Charu Chanana, a strategist at Saxo Capital Markets Pte. “However, the long-run impact of tariffs is likely to be dollar-negative as long-term trade protectionism could erode US economic dominance.”
Spot gold declined 0.6% to $2,782.94 an ounce as of 9:26 a.m. in Singapore, after climbing 1% last week. The Bloomberg Dollar Spot Index rose 1.1%, after advancing 1% last week. Silver, platinum and palladium all dropped.