The Recent Drop in Gold Prices: A Look at the Driving Forces
Factors that pushed the gold prices down recently:
Factor 1: The Federal Reserve (FED):
The FED delivered a hawkish statement after the interest rate was unchanged at 4.5% since December 2024, leaving no call for the next meeting decision. In fact, they reported on having strong economic growth and a solid labor market, while inflation is still persistent and may be affected by the high tariffs. All in all, several uncertainties remain unsolved, which lead to holding the interest rate further. The CME Fedwatch Tool stands at 50-50 chances in the next decision.
Factor 2: Trump’s tariff development:
The White House released its modified tariff rate, which will take effect in seven days at 12:01 a.m., Washington Time, and impose a 10% global minimum and 15% or higher duties for countries with trade surpluses with the US. Meanwhile, Canadian tariffs were raised from 25% to 35% and Mexican tariffs will be extended for 90 days.
Other than that, goods imports of pharmaceuticals, semiconductors, critical minerals, and other key industrial products are expected to be reported separately in the coming weeks.
All of these are sending a mixed signal for everyone, raising doubts on whether further development will diminish the concerns or add another phase of tariff tensions.
Factor 3: Earnings report from 7 magnificent stocks.
Meta Platforms and Microsoft posted strong earnings while announcing more spending will be pulled into CAPEX—aka, mostly to the AI expenses, which is enhancing tech sector sentiment and driving their stock prices up.
Morgan Stanley expects that $2.9 trillion will be spent on chips, servers, and data center infrastructure from 2025 to 2028, while other investment banks reported that all of these will likely contribute roughly 0.5% to U.S. GDP growth this year and next.
→ positive stock market → appreciate dollar value and depreciate the gold prices.
***Warning opinion: the big risk is whether this huge investment will be paid off later or not; beware of the AI boom/AI bubble.***
Looking Forward:
Tonight’s employment reports include the nonfarm payroll (NFP), unemployment rate, and average hourly earnings.
Higher NFP + High Average hourly earnings + Low unemployment rate → strong labor market conditions. And vice versa.
- If the report suggests stronger labor market conditions, then this will lead the FED to hold the interest rate high for longer and possibly lead to a depreciation of the gold price. And vice versa.
