Gold Between Trade Optimism and Economic Concerns

Gold is declining for the second consecutive session, although it remains above the critical psychological level of $3,300 per ounce in early spot trading this morning.

Losses in the precious metal come amid renewed optimism over potential trade agreements that could de-escalate the global trade war, alongside upbeat sentiment regarding the strength of the U.S. economy following last Friday’s labor market data.

The 90-day suspension of tariffs imposed by the administration of President Donald Trump is set to expire on Wednesday, but it could be extended at least until August 1, according to statements from both the president and Treasury Secretary Scott Besant.

Both the United States and its allies and trade rivals appear eager to reach an agreement. China and the U.S. are moving to implement the framework of a previously reached trade deal by reviewing the export restrictions imposed on one another. Meanwhile, European officials stated last week that a draft agreement with the U.S. may be near, aiming to maintain base tariff rates at just 10%, according to The Wall Street Journal.

Markets appear largely unbothered by trade developments, given the flexible and seemingly open-ended deadlines and the lack of major surprises, according to analysts cited by Reuters. This easing of concern may lead gold to gradually lose the risk premium it had gained from fears of a global trade war.

Still, those concerns could return swiftly if negotiations fail and heavy tariffs are reinstated. The Washington Post reported that a potential U.S.-Vietnam trade deal may anger China and, in turn, reduce the likelihood of a broader deal between Beijing and Washington.

Additionally, the prolonged uncertainty itself may start to weigh on the U.S. economy, which could, over time, rekindle demand for gold as a safe-haven asset. The Editorial Board of The Journal noted cracks in the U.S. labor market that lie beneath the better-than-expected headline figures released Friday. The report revealed weak hiring in key private sectors, a decline in manufacturing employment, and a drop in labor force participation to its lowest level since 2022.

The Editorial Board called for dissipation of uncertainty around trade policy to encourage private sector hiring, as companies remain hesitant amid the current indecision in the White House. Another report from The Journal also warned that prolonged uncertainty could weaken the U.S. dollar, delay corporate investment and spending, and dampen business confidence.

On a related front, The Journal’s chief economics commentator Greg Ip criticized what he called “fiscal dominance” under Trump, where the Federal Reserve may be pressured to lower interest rates to ease the burden of the rising deficit caused by tax cuts. He warned this could undermine economic strength and increase inflation in the long run.

In my view, the early signs of a deteriorating U.S. fiscal position could become one of the key long-term drivers of sustained gold gains—even if markets remain complacent for now and equities continue climbing to record highs. This would not reflect an economic cycle, but rather a deeper shift in market fundamentals characterized by eroding confidence in the U.S. economy and its currency.