Gold prices opened the week with sharp declines. Spot gold dropped 0.7% in early Asian trading on Monday, reaching $3,312.12 per ounce. Futures for September delivery also fell 0.8%, hovering around $3,320.67 per ounce. The market responded to a combination of three dominant forces: the strengthening of the U.S. dollar, reduced expectations for a Federal Reserve rate cut, and aggressive trade rhetoric from former President Donald Trump. Unlike the traditional pattern in which gold rallies during geopolitical uncertainty, this time it declined — reflecting investors’ shift in focus from political to monetary drivers.

Dollar Strength Pressures Precious Metals

The U.S. Dollar Index (DXY), which tracks the greenback against a basket of global currencies, remained strong near 105 points. This comes after a better-than-expected U.S. jobs report showing over 200,000 new positions added in June. In response, the market sharply lowered the probability of a summer rate cut. A stronger dollar makes gold — which is dollar-denominated — more expensive for international buyers, directly reducing demand and putting downward pressure on prices.

Trump’s Tariff Threats Largely Discounted

Although Trump recently reiterated his intention to impose a blanket 10% tariff on all U.S. imports — and up to 60% on Chinese goods — investors remain largely unmoved. The delay of the tariff implementation from July 9 to August 1 has signaled to markets that the threat is more strategic than imminent. As a result, the commodity markets remain largely influenced by monetary signals, not political headlines.

Fed Policy Continues to Weigh on Gold

The Federal Reserve currently holds interest rates in the 5.25%–5.5% range. According to the CME FedWatch Tool, the probability of a rate cut at the July meeting has dropped below 15%, compared to nearly 40% just a week ago. Robust macroeconomic indicators — including a tight labor market and persistent inflation — have pushed the Fed into a more cautious stance. For gold, this creates a challenging environment, especially when compared with interest-bearing alternatives like long-term U.S. Treasuries.

Broader Metals Market in Decline

The decline wasn’t limited to gold. Platinum fell 2% to $1,381 per ounce. Silver futures dropped 0.6% to $36.91 per ounce. Copper, often viewed as a bellwether for global industrial activity, declined 0.6% in London to $9,807 per ton, while the U.S. market saw a 1% drop to $5.013 per pound. These movements point to investors reducing their exposure to industrial metals amid uncertainty and a strong dollar.

Gold Reacts to Yields, Not Just Headlines

Once a go-to hedge in times of economic or geopolitical turmoil, gold now responds more to macroeconomic shifts — particularly interest rates and the dollar — than to global instability. With U.S. Treasuries yielding upwards of 4.5%, many investors prefer assets that offer current income. As long as the Fed maintains its current stance and the dollar remains strong, gold may continue to lose its relative appeal as a defensive play. Investors are waiting for a clear signal — a genuine shift in rate expectations — before increasing their exposure to the metal.

Weekly Volatility: Modest Rise, Sharp Fall

Despite Friday’s sharp pullback, gold prices actually posted a weekly gain of 0.8%, adding $26.34 per ounce. The price closed at $3,327.66 on July 7. During the first days of July, gold showed cautious strength, but the trend reversed from July 5 onward, with prices declining steadily into the new week. This highlights the heightened volatility in the market, where sentiment can shift rapidly based on any hint of change in rate outlook or dollar momentum.

Summary: Gold Strength Hinges on Weakening Monetary Conditions

The precious metals market moved contrary to traditional expectations this week. Despite global growth concerns and rising political risks, gold and other metals posted significant losses. The dominant dollar, strong U.S. macro data, and the Fed’s silence on rate cuts are placing gold in a tough spot. The message for investors is clear: at this stage, monetary policy — not political noise — is steering the market. Gold could rebound, but only when the market begins to price in a genuine rate cut. Until then, caution trumps panic.