By Samer Hasn, Senior Market Analyst at XS.com
August 1, 2025:
Gold is rebounding following yesterday’s sharp losses, rising by more than 1% in early morning trading and reclaiming the $3,300 per ounce level.
The recovery comes as market attention shifts back to the tariff issue, with the deadline for suspending tariffs on several of the United States’ major trading partners fast approaching. Today’s gains also reflect a rebound from losses that were deepened by the Federal Reserve’s hawkish stance.
President Donald Trump had threatened to impose steep tariffs on Canada, Mexico, Brazil, and others if no deal is reached before the end of the month. Trump previously stated that the suspension deadline, which ends today, would not be extended. The coming hours will reveal whether we will see an agreement that further alleviates concerns about the trade war or whether we are entering a new phase of heightened fears over inflation risks and elevated interest rates.
This uncertainty over the inflation outlook is leaving Federal Reserve policymakers divided and hesitant, a dynamic that became apparent following yesterday’s policy meeting.
Jerome Powell stated that it is too early to talk about rate cuts in September and reiterated concerns over rising inflation driven by tariffs. Despite division among Fed members, this stance has dimmed hopes for even two rate cuts by the end of the year, with current market odds falling to around 40%, according to the CME Fed Watch Tool. This pessimism regarding potential monetary easing had significantly pressured gold yesterday.
However, the tariff environment, whether involving extremely high or relatively moderate rates, may have effects on the economy that go beyond inflation and high interest rates. This could keep the door open for gold to recover despite a hawkish Fed. The U.S. economy continues to show signs of underlying weakness despite data that appears optimistic. In addition, uncertainty surrounding trade policy continues to weigh on investment and job creation.
For instance, while a 3% growth rate in the U.S. economy last quarter might have seemed surprising yesterday, the jump was largely due to a drop in imports caused by tariffs. Meanwhile, private domestic investment fell more than 15% year-over-year, as noted by the Wall Street Journal’s Editorial Board. They also believe that removing uncertainty over tariffs and immigration is essential to usher in a “golden era.”
Yet, gold’s recent lackluster performance seems at odds with these concerns. This divergence may be explained by market optimism over the resilience of the U.S. economy and its ability to weather negative shocks—whether inflationary or trade-related. So far, corporate earnings this season have supported this belief.
Moreover, gold appears to be losing one of the major catalysts behind its recent surge: central bank buying. According to the World Gold Council, central bank gold purchases dropped by 21% in the second quarter year-over-year. Consumer demand for gold jewelry also declined by 14% due to high prices.
Also, the ongoing monetary tightening is likely to keep Treasury yields at relatively high levels. Although gold often shrugs off elevated yields, the exceptionally low level of fear in the bond market makes rising yields more detrimental to gold. The MOVE index, which gauges uncertainty in the Treasury market, is currently at its lowest level this year and near its lowest since 2024.