Gold prices traded below two-week highs in Asian trade on Tuesday, buoyed by a softer United States dollar as markets in the U.S. and United Kingdom remained closed Monday for public holidays.
By 3:40 pm AEST (5:40 am GMT) spot gold was down $17.21 or 0.5% at US$3,325.20 per ounce.
The dollar index slipped 0.2% on Monday, nearing a one-month low against a basket of major currencies. The weaker greenback made dollar-denominated gold more affordable for investors using other currencies, supporting demand.
The U.S. House of Representatives last week approved a version of President Donald Trump’s tax-cut bill that the Congressional Budget Office estimates would add about US$3.8 trillion to the federal debt - already standing at $36.2 trillion - over the next decade.
Meanwhile, Trump stepped back from a threat to impose a 50% tariff on EU imports starting 1 June. The deadline has now been postponed to 9 July to allow time for further negotiations with the 27-member bloc.
Minneapolis Federal Reserve President Neel Kashkari said Monday that “extended tariffs raise risk of stagflation”, highlighting the Fed’s growing concerns over inflationary pressures amidst slowing economic growth.
In addition to fiscal and monetary concerns, geopolitical tensions continue to underpin demand for safe-haven assets like gold. Investors remain wary of ongoing friction between Russia and Ukraine, and between the U.S. and Iran over stalled nuclear talks.
ANZ analysts wrote: "[The] U.S.'s erratic trade policies are creating uncertainty across global markets. This should continue to support haven demand for gold.
"Other geopolitical flashpoints could also boost investor demand. Germany has given Ukraine the green light to strike deep inside Russian territory. The Kremlin called such a decision dangerous and counter to the goal of reaching a political settlement."
Upcoming U.S. economic indicators - including durable goods orders and consumer confidence data - may influence the near-term dollar direction.
Investors are also monitoring commentary from several Federal Reserve officials this week, as well as Friday’s release of the core personal consumption expenditures (PCE) price index, a key inflation gauge for the Fed.
