As the week started, gold registered modest gains as the dollar weakened, Fed rate cut chances increased and uncertainties persisted in the trade relations between the U.S. and its major trading partners.
The dollar index stumbled to its lowest level in years; it was last seen at this level back in the initial months of 2022. When the USD weakens, international buyers of gold are boosted because they pay less to acquire bullion. This increases the safe haven appeal of owning gold since the opportunity cost of such an investment is reduced.
Markets have also intensified their expectations about an impending cut to the Fed rate after data revealed that tariffs have had a minimal impact on economic activity. Goldman Sachs has gone as far as revising its outlook and now says the Fed is likely to make three cuts to its rate instead of the initial one cut that the investment bank had initially forecast for the remaining part of this year. The next cut is expected in September.
As expectations of rate cuts strengthen, the appeal of adding gold to portfolios strengthens because the opportunity cost reduces. When interest rates are high, holders of gold miss out on the interest they would have earned if they had put their money in interest-generating avenues.
Another factor favoring gold’s bullish outlook is the recently enacted U.S. budget bill. The Congressional Budget Office estimates that the law will add more than 3 trillion dollars to the national debt over the coming decade, and this raises questions about the sustainability of debt servicing at such elevated levels. These concerns are bound to further boost the appeal of holding gold as a hedge against possible USD devaluation as the country struggles to service its debts.
Of bigger concern are the ongoing tariff talks taking place between the U.S. and other countries. Not much headway has been made, and time is fast running out. Concerns are rising that President Trump will have those steep tariffs implemented, and that could trigger major disruptions in international trade. When that happens, a global recession is likely, and investors are likely to rush to buy gold to hedge against the economic downturn. This will push the price of gold even higher.
As things stand, there is a potent cocktail of factors that all point to gold’s price gaining further upward momentum, though tariffs talks could have an oversize influence on how high it could go in the short to medium term. Whichever way things pan out, gold exploration companies like Torr Metals Inc. (TSX.V: TMET) are unlikely to have any sleepless nights since existing conditions are largely bullish for the precious metal, positioning them well to deliver shareholder value.
NOTE TO INVESTORS: The latest news and updates relating to Torr Metals Inc. (TSX.V: TMET) are available in the company’s newsroom at https://ibn.fm/TMET
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