Stock Market Rout Triggers Margin Selling in Gold
Risk-off sentiment intensified after U.S. President Donald Trump announced sweeping new tariffs affecting over 180 countries, including a 54% total tariff rate on Chinese goods. Global equity markets sold off sharply, with Dow futures falling over 1,300 points and the 2-year Treasury yield plunging 16 basis points to 3.52%, the lowest since September 2022. The equity market collapse forced investors to cover margin calls, prompting gold liquidations despite the metal’s safe-haven appeal.
Hawkish Powell Dampens Rate Cut Hopes
Federal Reserve Chair Jerome Powell signaled a more cautious approach on rate cuts, noting that the inflationary impact of the tariffs could be more persistent than initially anticipated. While markets had priced in as many as five rate cuts this year, Powell’s emphasis on inflation control suggests the Fed may delay any easing. The hawkish tone put further downside pressure on gold, as the likelihood of near-term rate cuts diminished.
Central Bank Buying and Recession Risk Provide Underlying Support
Despite Monday’s sharp drop, gold remains supported by ongoing central bank purchases and growing recession fears. China added to its gold reserves for a fifth consecutive month, while Deutsche Bank upgraded its year-end gold price forecast to $3,350, citing macroeconomic headwinds and safe-haven demand. Additionally, real yields are expected to stay low, providing a longer-term bullish backdrop for gold.
