UAE gold prices down AED2.25, global rates fall on stronger dollar

Fueled by growing concerns about a global trade war triggered by US President Donald Trump's tariff measures, the dollar strengthened, causing gold prices to fall nearly 1% on Monday, after having previously reached record highs.

In the UAE, gold prices declined, with 24K gold and 22K gold falling by 2.25 dirhams to 336.75 dirhams and 311.75 dirhams, respectively. Simultaneously, 21K gold decreased by 2 dirhams to 301.75 dirhams, and 18K gold dropped by 1.75 dirhams to 258.75 dirhams.

Global spot gold prices fell 0.52% to $2,784.01 per ounce as of 6:14 GMT. This followed gold reaching an all-time high of $2,817.23 per ounce on Friday. Concurrently, US gold futures prices decreased by 0.71% to $2,814.80 per ounce.

The dollar index rose 1.12% to 109.59, making gold more expensive for holders in other currencies. Tariff announcements typically drive up safe-haven demand, which would lead to an increase in gold prices. However, the stronger dollar and reduced expectations of interest rate cuts this year are exerting downward pressure on the precious metal.

On Saturday, Trump imposed a 25% tariff on imports from Canada and Mexico and a 10% tariff on goods from China, effective from February 4th. White House officials stated that there would be no exemptions to these tariffs. Canada and Mexico have ordered retaliatory measures, while China has said it will challenge the tariffs at the World Trade Organization and take unspecified countermeasures.

Trump's tariff moves have caused the dollar to surge, which in turn has significantly weighed on gold prices. Further tariff escalations should be beneficial for gold and could potentially push prices up to $3,000 per ounce. However, some market participants point out that a bearish trend in the stock market could impact gold prices in the short term.

Investors remain concerned that Trump's new tariffs could significantly exacerbate inflation in the US and validate the Federal Reserve's expectations, thereby further impacting gold prices. The US Commerce Department reported last Friday that inflation showed strength at the end of 2024, with consumer spending surging in December, delaying expectations of a more aggressive easing policy from the Fed.

The Personal Consumption Expenditures (PCE) price index rose 2.6% year-on-year in December, up from 2.4% in November, while the core measure rose 2.8%, in line with November’s reading and widespread expectations. US Treasury Secretary Scott Bessent, who had pushed for new universal tariffs on imports, starting at 2.5% and then increasing gradually, stated that tariffs are inflationary and will continue to strengthen the dollar.

Federal Reserve Chairman Jerome Powell stated on Wednesday that inflation and jobs data would dictate when policy would be eased again. The Fed decided to hold policy steady at the conclusion of its two-day meeting on Wednesday, and hinted that it would not rush to reduce borrowing costs until inflation and employment data were appropriate. Following the Fed’s first pause in rate cuts since September, markets expect the Fed to remain cautious in easing policy. Higher interest rates reduce the appeal of non-yielding assets like gold.

As gold prices retreated from their new highs, the precious metals market saw a downward trend on Monday. Spot silver fell 1.27% to $30.91 per ounce, platinum fell 1.36% to $964.27, and palladium fell 0.49% to $1,003.34.