US President Donald Trump's global reciprocal kick in on Wednesday, fuelling a fresh risk-aversion wave across the financial markets, spiking up the demand for the traditional safe haven Gold. China is hit hardest with 104% tariffs by the US, heighening US-Sino trade tensions.
Gold price is underpinned by US tariffs-inspired global flight to safety
The White House press secretary Karoline Leavitt confirmed that the US will proceed with a sweeping 104% tariff on Chinese imports starting this Wednesday. This continues to fuel worries that an all-out trade war would push the global economy into recession, which triggers a fresh wave of the risk-aversion trade and revives demand for the safe-haven Gold price.
Investors ramped up their bets that a tariffs-driven US economic slowdown could force the Federal Reserve (Fed) to resume its rate-cutting cycle soon. In fact, the CME Group's FedWatch Tool suggests that traders are pricing in over a 60% chance that the Fed will lower borrowing costs in May. Moreover, the US central bank is expected to deliver five rate cuts in 2025.
This, in turn, drags the US Dollar lower for the second straight day despite the overnight hawkish comments from Fed officials. In fact, San Francisco Fed President Mary Daly said on Tuesday that the policy is in a very good place and modestly restrictive. Daly further noted that inflation pressure from widespread tariffs is an increasing concern.
Separately, Chicago Fed President Austan Goolsbee said that US tariffs are way bigger than anticipated and pose a real risk to US importers who have very few fallback options. The relationship of sentiment to spending isn't as strong as before and It's not obvious how the Fed would react to negative supply shock, Goolsbee added further.
Investors now look forward to the release of minutes from the Fed's last policy meeting. Apart from this, the US Consumer Price Index (CPI) and the Producer Price Index (PPI) on Thursday and Friday, respectively, will be scrutinized for cues about the Fed's policy path. This, in turn, will drive the USD in the near term and influence the XAU/USD pair.

Source: Fxstreet