Since late December last year, the "Trump Trade" has driven up U.S. dollar interest rates and exchange rates. But gold didn't drop much; instead, the U.S. Dollar Index and gold prices rose together.
In the short term, with the Federal Reserve's rate - cut expectations weakening and safe - haven buying cooling due to the Israel - Palestine deal, gold may face challenges. Long - term, in 2025 Q1, Trump's gradual tariff hikes could lead to re - inflation or economic slowdown, both good for gold prices. Also, U.S. fiscal issues affect the dollar's credit, and central banks' de - dollarization gold purchases make gold more likely to rise.
The Impact of U.S. Dollar Interest Rates and Re - inflation
The Rebound of the Real U.S. Dollar Interest Rate Restricts Gold Prices: A strong U.S. job market in December cooled Fed rate - cut hopes for Q1. Trump's new tariff policy raised re - inflation concerns, pushing up the real U.S. dollar interest rate and suppressing gold prices short - term. Fed Chair Powell said the Fed will be cautious on rate cuts if the job market and economy are stable. Fed officials in December saw a healthy but slowing labor market and worried about high inflation, meaning no rate cuts without big job market or inflation changes.
The U.S. Re - inflation Expectations May Not Materialize: Since Trump's win, the market expected his policies to cause re - inflation. But it may not happen. The job market is strong, but wage growth is slow, breaking the wage - inflation cycle. Core inflation is also slowing down. Plus, the U.S. is increasing tariffs gradually, which could slow consumer spending and lower core CPI growth, like in 2018 - 2019.
Hedging against the U.S. Dollar Credit and the Gold Market Trend
In January, the U.S. dollar and gold price trends diverged, showing that gold prices depend on the dollar's credit, which is weakened by U.S. debt imbalance. Trump's policies need fiscal sustainability. To cut taxes, he must cut spending and raise tariffs; otherwise, the dollar's credit will worsen.
To hedge against a weaker dollar, emerging economies are increasing gold holdings as a substitute for U.S. dollar assets. Asian economies' gold reserves are much lower than those of European and American central banks, leaving room for growth. In this de - globalization and weak - dollar - credit era, central banks' gold purchases will keep driving up gold prices. China, for example, has increased its gold reserves for two consecutive months.
In conclusion, the U.S. economy's strength, re - inflation expectations, and the eased Israel - Palestine conflict put short - term pressure on gold. But long - term, Trump's policies can't reverse the dollar's weakening trend. Central banks and financial institutions will likely increase gold holdings, which is good for gold prices. Gold consumers can consider the Micro Gold Futures (MGC) of the CME Group or the gold futures of the Shanghai Futures Exchange to manage risks.
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