Gold is seeing a slight pullback today following the over 2% surge it recorded last Friday, while still attempting to hold above the $2,360 per ounce level.
This sideways price action reflects the conflicting market drivers, torn between rising optimism over a potential interest rate cut in the U.S. this September and mounting concerns about economic resilience following a string of disappointing data, as well as persistent uncertainty surrounding the state of global trade negotiations.
After expectations of multiple rate cuts dwindled, especially following hawkish remarks from Fed Chair Jerome Powell, markets have grown more confident in a single rate cut by September, and are even pricing in up to 75 basis points of easing before year-end. According to CME’s FedWatch Tool, the probability of a September cut has surged to over 80%, up from 63% a week ago. The odds of ending the year with rates lowered by 75 basis points have risen from 20% to 47%.
This sentiment was triggered by underwhelming July nonfarm payroll and unemployment data, which showed the U.S. economy adding just 73,000 jobs, which was well below expectations of 106,000, while unemployment climbed to 4.2%. Manufacturing activity also contracted at a faster-than-expected pace, weighed down by weak external demand and reduced sector hiring amid trade-related uncertainty, according to the July ISM Manufacturing PMI.
Adding to the dovish narrative, Federal Reserve Governor Adriana Kugler submitted her resignation ahead of the end of her term, giving President Trump an unexpected opportunity to nominate a new member and possibly influencing future Fed decisions.
However, this monetary policy outlook cannot be separated from the uncertain trajectory of trade policy, with negotiations still unresolved, particularly with China, Canada, and Mexico. The tariff truce between the U.S. and China is set to expire in the coming days, with no deal in place to defuse tensions.
Although hopes rose after deals were reached with the EU and some Asian nations, an agreement with China remains far more complex. Unlike other trading partners, China holds considerable leverage. For example, the Wall Street Journal recently reported that Beijing has tightened restrictions on exports of critical minerals, severely disrupting Western defense supply chains and exposing the U.S. military’s heavy reliance on Chinese-sourced rare earth elements. Delays and shipment denials, especially for defense applications, have led to production slowdowns, spiking costs, and material shortages. Despite Washington’s attempts to diversify, including a $400 million Pentagon investment, viable alternatives remain years away, underscoring both Beijing’s strategic leverage and the fragility of America’s defense industrial base.
This suggests the negotiation path may be extremely bumpy and could trigger multiple market shocks. Should Trump fail to impose trade terms on China, he may escalate tensions or prolong talks in search of more favorable terms, where both scenarios posing considerable risks. Even if tariffs remain suspended, prolonged uncertainty around trade policy could continue to weigh on business investment and job creation, just as highlighted in several recent PMI reports.
Written by Samer Hasn, Senior Market Analyst at XS.com
