Gold’s Rally Cut Short by Trump’s Mexico Flip-Flop

London (June 11)  Even the possibility of a Federal Reserve rate cut couldn’t save the day for gold bugs, as President Donald Trump’s decision not to punish Mexico after all proved bigger.

Bullion and futures of gold fell from 14-month highs on Monday, snapping an eight-day rally, as the president's decision not to go ahead with escalating taxes on Mexican imports took a chunk of the fear factor out of global macro markets. The flip-flop on tariffs also gifted an opportunity for those looking to cash out from gold’s longest rally for this year.

Spot gold, reflective of trades in bullion, traded at $1,327.64 per ounce by 2:48 PM ET (18:48 GMT), down $12.94, or 1%, on the day. It scaled a April 2018 high of $1,348.34 on Friday.

Gold futures for August delivery, traded on the Comex division of the New York Mercantile Exchange, settled down $16.80, or 1.25%, at $1,329.30 per ounce. It reached a February peak of $1,352.55 in the previous session.

The August gold contract has gained nearly $70, or almost 5.5%, between May 28 and June 7.

Notwithstanding Monday’s slide, the near-term outlook for gold is still firm due to bets that the Fed will have to cut interest rates after less-than-stellar U.S. jobs data for May.

Gold pundits mostly see August gold futures topping $1,400 an ounce between now and June 19, when the Fed is due to issue its next policy statement after its monthly meeting. While the central bank is not expected to decide outright on a rate cut at this round, traders will be closely watching the language in its statement to gauge how dovish it is and whether an easing could be expected in coming months.

Federal funds futures markets are pricing in at least a half-point cut this year and another 40 basis points in 2020. Investing.com's Fed Rate Monitoring tool  is guessing a nearly-98% chance of lower interest rates by December.

Fed Chairman Jerome Powell assured markets last week the central bank will do whatever it takes to shield the U.S. economy from recession owing to trade wars and also preserve nearly a decade of record growth.

Investimng.com