Gold lower after Trump defends Dollar, threatens BRICS with tariffs
NEW YORK (December 2) Gold (XAU/USD) falls and trades in the $2,640s on Monday due to a stronger US Dollar (USD). However, the downside is limited as geopolitical risks remain elevated, driving continued safe-haven demand for the precious metal.
Gold pulls back at the start of the trading week after President-elect Donald Trump threatened to raise 100% tariffs on the BRICS trading bloc of nations if they go ahead with plans to replace the USD with their own currency.
His comments strengthened the US Dollar, which tends to negatively impact Gold since the precious metal is mainly priced and traded in USD.
Gold pulls back on Trump spat with BRICS
Gold weakens on Monday after Donald Trump issued a warning to the BRICS emerging-market trading bloc that he will place 100% tariffs if they go ahead with plans to replace the US Dollar with their own currency.
“The idea that the BRICS Countries are trying to move away from the Dollar while we stand by and watch is OVER,” Trump posted on Truth Social on Saturday afternoon. “We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty US Dollar or, they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful U.S. Economy,” he added.
The BRICS – which includes Brazil, Russia, India, China, South Africa, Egypt, Iran, the United Arab Emirates, and Ethiopia – has been steadily reducing its reliance on the USD as a medium of exchange, using the currencies of its members instead.
It has even been suggested that it could develop its own Gold-backed BRICS currency for trading purposes, replacing the Dollar altogether.
Some BRICS countries, such as China and India, have also been hoarding Gold. This may be because they want to launch a Gold-backed currency to replace the US Dollar.
Trump’s warning threatens to derail their plans if members become fearful of the fallout of a global trade war with the US, and this could also be weighing on Gold price.
Gold underpinned by haven flows
On the other side, Gold continues to benefit from an elevated level of geopolitical risk, which drives safety inflows and acts as a counterweight to the depressing influence of Trump’s word hail.
Despite agreeing to a ceasefire last week, the Lebanese authorities reported an Israeli military drone strike on a bulldozer carrying out fortification work at an army base on the Syrian border on Monday. Furthermore, in Gaza, an Israeli strike killed another 15 people, according to Reuters.
In Syria, civil war has erupted, bringing yet more instability to the region, with Turkish-backed rebel forces taking Syria’s second city, Aleppo.
Meanwhile, French government bonds are continuing their sell-off in Europe, reaching levels last seen over a decade ago during the sovereign debt crisis. This comes amid increased political risk as the government tries to get a controversial Budget passed.
French Prime Minister Michel Barnier’s minority government wants to bring the deficit down by making spending cuts but risks being ousted in a vote of no confidence led by the French far-right National Rally party, which is pushing back against the proposed spending cuts.
FXStreet
