Gold Begins to be Burdened by Fundamentals
It is not surprising to see the decline in gold prices that have occurred and will occur in the near future. Shortly before the meeting in Switzerland, there have actually been several steps and actions taken by the US and Chinese governments in cutting some tariffs on several imported goods from each country.
There are several major fundamentals that previously provided strong encouragement that are now starting to burden gold in the future, including:
1. China and the US Begin to Lower Trade War Tensions
US President Donald Trump said China has agreed to remove non-tariff barriers to US imports as he announced a de-escalation of his trade war with Beijing, indicating greater concessions could occur if talks continue.
"China will also suspend and remove all of its non-monetary barriers. They have agreed to do that," Trump said at the White House on Monday (12/5) after the first publicly known talks between the two countries since the start of the crippling tariff war.
The agreement negotiated between Chinese delegates and Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer in Geneva announced only that the two countries would temporarily lower tariffs to give them more time to negotiate. The president did not provide specifics about what barriers China had agreed to remove in the closed-door discussions, while acknowledging that future discussions would only get more complicated.
2. India-Pakistan Conflict Not Expected to Last Long
A cease-fire between India and Pakistan appeared to be holding Sunday after four days of clashes that brought the nuclear-armed nations to the brink of war.
India achieved its goal of “destroying terrorist camps,” Air Chief Marshal A. K. Bharti said at a briefing Sunday, adding that dozens of suspected militants in Pakistan had been killed. Five Indian soldiers and civilians were also killed in the fighting, according to the military.
In a late-night briefing Sunday, a Pakistani military spokesman said there was no room for war between the two countries.
"Military conflict or war between two nuclear-armed rivals is unthinkable, unthinkable, and simply foolish," Lt. Gen. Ahmed Sharif Chaudhry said. The conflict is "a recipe for mutual destruction."
3. Fed Hesitation to Cut Interest Rates
Federal Reserve Chairman Jerome Powell said officials are in no rush to move interest rates, adding that tariffs could lead to higher inflation and unemployment.
Powell also said Wednesday at the end of a two-day meeting in Washington that "if the large increases in tariffs that have been announced are sustained, they are likely to result in higher inflation, slower economic growth, and higher unemployment."
"The impact on inflation could be short-lived, representing a one-time shift in the price level," he said. However, "it is also possible that the impact on inflation could be more persistent."
Officials voted unanimously to keep the benchmark federal funds rate in the range of 4.25% to 4.5%, where it has been since December. In a statement, policy makers said they see growing risks of higher inflation and higher unemployment. So if we look at those reasons it is a decline in impetus and may even be a pushback for some commodities including gold. Although it is expected to remain in the $3000 per troy ounce area but the furthest decline may see the $2900 per troy ounce area again in the long term.
Source: (mrv@Newsmaker)
