Quick overview

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The bullion asset experienced a slight decline in London trade on Tuesday, reversing a recent high of over a month. Gold futures dropped $3,400 per ounce, while XAU/USD traded at $3,388 per ounce.

Reports indicated that the European Union was preparing to impose retaliatory tariffs against the United States, which contributed to an increase in gold prices. Concerns over proposed tariffs from President Donald Trump, specifically, that Washington was aiming for at least 15% tariffs on the EU, also played a significant role in boosting demand for safe havens. This heightened demand came ahead of a meeting next week amid uncertainty surrounding the Federal Reserve and US interest rates.

It is generally expected that the Fed will keep rates unchanged, while Trump has been increasingly urging the Fed to lower interest rates immediately. Markets remained on edge as the August 1 deadline for US tariffs approached. Diminished expectations for a trade agreement between the US and the EU affected risk sentiment, leading traders to be more cautious about a potential trade war between the two.

The EU was noted to be preparing its retaliatory measures response to the higher-than-expected US tariffs. Concerns that Trump’s proposed tariffs would be fully implemented grew after his administration announced a limited number of trade agreements. Additionally, the Trump administration recently suggested that extending the tariffs deadline past August 1 was unlikely. Trump’s two-week streak of letters announcing tariffs ranging from 20% to 50% on key US trading partners has alarmed the market and prompted threats of retaliation from some nations.

The dollar, which had risen for two consecutive weeks, began to decline as gold prices rallied yesterday.

The dollar remained stable despite a growing belief that the Fed will maintain steady interest rates next week. However, amid increasing rumors that Trump might attempt to fire Fed Chair Jerome Powell, markets continued to express concerns about the  Federal Reserve’s independence

The president and his supporters are frustrated with Powell’s reluctance to lower interest rates. Since Powell’s speech occurred during the Fed’s pre-meeting media blackout period, it remains unclear whether he will comment on monetary policy later on Tuesday.