USDINR volatility to impact domestic gold prices amid Trump's EU tariff shifts

Mon May 26 2025

After posting the worst weekly decline this year in the week ending May 16, spot gold prices rallied sharply

this week on renewed safe haven demand as the US lost its last top-notch credit rating and easing tariff

tensions flared once again with Trump threatening EU, Samsung and Apple with tariffs.

Spot gold traded between $3204 (May 20) and $3365 (May 23) during the week before closing with a huge weekly gain of 4.84% at $3357. It was up by 1.89% on Friday.

Tariff developments

On Friday, President Trump threatened to a sweeping 50% tariffs on the European Union from June 1 as he feels discussions with them are not going anywhere. He added that the bloc is very difficult to deal with. He increased pressure on Apple to manufacture its iPhones in the US, threatening a tariff of at least 25% in case of non-compliance.

Treasury Secretary Scott Bessent said that he anticipates several large deals in the next couple of weeks as many Asian countries have approached with very good deals. He expects in-person negotiations with Chinese counterparts also.

Data roundup

Leading Index (April) fell 1% (forecast 1%), the most since March 2023. S&P Global US manufacturing PMI (May prel.) at 52.30 beat the forecast of 49.90 and grew at the fastest pace since February, as even services PMI at 52.3 (forecast 51) clocked the quickest pace since March, which helped the composite PMI expand the most since March.

The UK's core CPI at 3.8% was hotter-than-expected as it rose the most since April 2024, while headline annual inflation rate surged from 2.6% in March to 3.5% (forecast 3.3%) in April, the hottest since the

beginning of 2024. The CPI data may force the Bank of England to ease the pace of rate cuts.

Japan's inflation continues to be high, as national headline CPI and core CPI at 3.6% and 3.5% in April beat their respective forecasts of 3.5% and 3.4%. The headline CPI reading is the hottest since February 2023.

China's data were mostly disappointing as although industrial production in April at 6.1% beat the forecast of 5.7%, retail sales and property data lagged their respective forecasts. On May 19, China's Central Bank cut both one-year and 5-year Loan Prime Rates by 0.1% each.

Fedspeak

Austan Goolsbee, President of the Chicago Federal Reserve, warned that tariff shock may delay rate cuts

as recent tariff developments have complicated the Fed's job.

Fed Governor Waller floated a possibility of a rate cut in the second half of the year if the Trump Administration's tariffs on US trading partners settle around 10%.

Yields and Dollar Index

Bond yields surged globally on worries over fiscal situations. Japan's 30-year and 40-year yields rose to a record high.

US bond yields surged sharply higher before backing off amid the intensifying trade war. A weak 20-year bond auction worsened the sell-off in treasuries.

Ten-year yields at 4.62% hit the highest level since February 2025, while 30-year yields surged 5.15%, the highest since 2007. US ten-year and 30-year yields closed 1.84% and 2.65% higher, respectively, on the week.

The US Dollar Index tumbled nearly 2% on the week as it closed at 99.10. It is close to testing the post-reciprocal tariff low of 97.92.

ETF

Total known global gold EETF holdings stood at 87.90 MOz as of May 22, as holdings were on a track of a fifth consecutive decline on profit booking by investors on easing trade worries. However, ETF holdings are still up over 6% YTD.

Upcoming data and events

Traders will closely monitor US GDP (1Q secondary reading), Conference Board consumer confidence (May), FOMC minutes (May 7 meeting), real personal spending (April), PCE Price Index (April)- Fed's preferred inflation gauge, advance goods trade balance (April), University of Michigan sentiment and inflation expectations (May final).

The Fed Chair Powell will give Baccalaureate remarks at Princeton University on May 26. He may not discuss the economic outlook, though.

Outlook

Lingering worries over US fiscal deficits, globally surging bonds, Dollar weakness and intensifying trade war make a strong case for gold extending its rally further, though it is to be noted that markets are still somewhat sceptical of Trump's threat to the EU. The US Dollar Index has weakened 7% this year and is likely to fall further on US exceptionalism being put into question. USDINR volatility will significantly affect domestic gold prices.

Gold bulls need to be cautious about the possibility of Trump shifting his stance on EU tariffs and progress in trade deals with other trading partners. A decisive breach of the resistance zone of $3365-$3371 may take the yellow metal to $3435 and will bring the all-time high of $3500 in focus. Support is at $3250/$3292. Overall, we continue to maintain a bullish stance on gold.

Source: https://economictimes.indiatimes.com/