Gold prices experienced a sharp correction this week, falling by as much as 10 percent, following a shift in market sentiment triggered by comments from former President Donald Trump regarding potential trade policies, according to reports from financial news outlets.
Ed Yardeni, President of Yardeni Research, has significantly revised his market outlook, lowering his S&P 500 targets in response to Trump’s increasingly assertive stance on tariffs. Yardeni, previously a consistent market bull, now acknowledges that Trump is not “bluffing” about implementing new trade barriers, a position he outlined in commentary earlier this year. This realization is contributing to increased market volatility and a reassessment of economic forecasts.
The shift in gold prices coincides with a strengthening dollar, driven in part by increased defense spending and geopolitical tensions, particularly surrounding Iran. Yardeni noted that the demand for dollars related to defense expenditures is counteracting some of the upward pressure on gold, which had previously approached $5,000 per ounce. While a correction is underway, Yardeni maintains a long-term bullish outlook for gold.
Trump’s tariff policies, which include a 25% tariff on steel and aluminum imports, a 25% tariff on imported cars and auto parts, and tariffs on goods from Canada and Mexico not compliant with the USMCA trade agreement, are creating widespread uncertainty. The US is currently engaged in trade negotiations with 15 major economies, and 75 countries have expressed interest in potential trade deals. This “New World Disorder,” as Yardeni terms it, is keeping investors and trading partners globally “on edge.”
Rising global bond yields are similarly a concern, reflecting inflationary pressures from higher oil prices – currently holding near $100 a barrel with stable supply – and increased defense spending. The situation is described as a “terrible combination for bond markets” by Yardeni. Brent crude oil is currently testing a bullish trendline, according to analysis from Economies.com.
Despite the recent downturn, Yardeni continues to forecast a potential gold price of $10,000 in the coming years, though the timing of this increase remains uncertain given the current geopolitical and economic climate. The market is closely watching for further developments in trade negotiations and any escalation of geopolitical tensions.
