Gold Drops On Treasury Yields Rise, Potential U.S. Tariff To Ease Inflation

None

(Bloomberg) -- Gold edged lower as the dollar strengthened on bets the deteriorating growth outlook for the euro area will lead to slower monetary tightening there than in the US.

The greenback gained as much as 0.7% -- putting pressure on gold -- as the euro dropped amid weaker economic data in France. Concerns are growing about gas shortages because of cuts to supplies from Russia, with the fallout likely to restrain rate increases by the European Central Bank.

Investors also weighed the possible scrapping of some US tariffs on Chinese consumer goods that could help ease inflation. President Joe Biden may announce a rollback of some levies as soon as this week, people familiar with the deliberations said, though the timing could slip and a final decision has yet to be made.

It would mark Biden's first major policy step on trade ties with China and appears to be aimed at curbing inflation, which has spurred sharp rate hikes and damped the appeal of non-interest bearing gold. China's Vice Premier Liu He discussed US tariffs in a call with Treasury Secretary Janet Yellen.

“If the Biden administration does scrap some Trump-era tariffs on China goods, it will definitely be good news for consumers and inflation,” said Brian Lan, managing director of Singapore-based dealer GoldSilver Central Pte. This “could mean that the Fed will not need to do as much to rein in inflation if this is passed, and will be good for gold,” he said.

The precious metal has fallen for the last three months on rising interest rates, but is managing to hold above $1,800 an ounce amid fears of a recession that could boost its haven appeal. Still, prices have formed a so-called death cross pattern -- when the 50-day moving average drops below its 200-day counterpart -- which is a bearish signal for some traders.

The minutes of the Federal Reserve's latest meeting due Wednesday will be parsed for clues on the central bank's tightening path and whether it's likely to hike by 50 or 75 basis points at its July 26-27 gathering. Investors will also be awaiting US nonfarm payrolls and unemployment data due Friday.

“The gold market will be focusing its attention this week on the minutes of the latest Fed meeting and on the US labor market data,” Carsten Fritsch, an analyst at Commerzbank AG, said in a note. “The latter in particular have the potential to drive the gold price” via the euro-dollar exchange rate, he said.

Spot gold declined 0.3% to $1,803.03 an ounce as of 11:39 a.m. in London. The Bloomberg Dollar Spot Index rose 0.6%. Silver and platinum fell, while palladium was little changed.

(A previous version corrected data compiled by Bloomberg)

More stories like this are available on bloomberg.com