Gold Surges Amidst Escalating Trade Tensions and Fiscal Concerns
Gold’s price uptrend resumed on Friday, with the yellow metal rising close to 2% daily and 5% weekly. The US Dollar (USD) weakened further after US President Donald Trump escalated the ‘trade war’ with the European Union (EU). This and investors’ woes regarding the US fiscal stance propelled bullion prices higher, with XAU/USD trading at $3,359 after bouncing off a daily low of $3,287.
Before Wall Street opened, Trump said that discussions with the EU “are going nowhere” while threatening to impose 50% tariffs on the EU’s imports on June 1. US Treasury Secretary Scott Bessent commented, “The president believes that the EU proposals have not been of the same quality that we’ve seen from our other important trading partners.” Trump further exacerbated market jitters by threatening a 25% tariff on Apple’s iPhones if the company does not shift production to the United States. This marks a reversal in momentum for Trump, who had recently touted preliminary trade “deals” with China and the United Kingdom, leading to a period of market relief.
Impact on US Debt and Treasury Yields
Adding to market anxieties, the US House of Representatives passed Trump’s ‘One Big Beautiful Bill,’ projected to add close to $4 trillion to the US debt ceiling. This fiscal expansion and Trump’s tariff threats have raised concerns about the US fiscal outlook. Moody’s had recently downgraded US government debt from AAA to AA1, citing similar concerns. Consequently, US Treasury bond yields halted their advance, with the 10-year Treasury note yield falling almost three basis points (bps) to 4.505%. The “sell America” trend strengthened, leading to outflows from US equities, bonds, and the US Dollar.
Geopolitical Developments
On the geopolitical front, the Russian Foreign Minister reported advanced work on a memorandum aimed at a ceasefire in Ukraine. Meanwhile, the US and Iran concluded on Friday a fifth round of negotiations in Rome over Tehran’s advancing nuclear program, adding another layer of complexity to the global landscape.
Mixed US Economic Data
May’s US housing data presented a mixed picture, with building permits collapsing and new home sales improving in April. US Building Permits dipped from 1.481 million to 1.422 million, a 4% month-over-month (MoM) loss. Conversely, New Home Sales for the same period increased by 10.9% MoM, rising from 0.67 million to 0.743 million.
Federal Reserve Commentary
A flurry of Federal Reserve (Fed) speakers, including St. Louis Fed’s Alberto Musalem and Chicago Fed’s Austan Goolsbee, offered their perspectives. Musalem highlighted companies’ struggles with supply chain, inventory, and inflation uncertainty. Goolsbee suggested the Fed needs to wait for the dust to clear before taking further action, implying a higher bar for intervention. According to Prime Market Terminal data, money markets are pricing 49.5 basis points of easing toward the end of the year.
US Dollar Weakens Amidst Tariff Concerns
The US Dollar Index (DXY), which tracks the buck’s value against a basket of six currencies, sank over 0.66% to 99.24, marking a fresh three-week low and halting a four-week winning streak. This significant selling pressure on the Greenback is primarily attributed to the re-emergence of tariff concerns, undermining the optimism generated by recent trade truce agreements with China and the UK. The US-China agreement reinforced hopes of easing global trade tensions, initially boosting the Greenback. However, Trump’s renewed threats quickly erased much of this optimism.
Apple Stock Dips Below $200
Apple (AAPL) stock also fell, selling off approximately 4% in premarket trading. Trump specifically criticized Apple for investing in production capacity in India rather than the United States, reiterating his demand that iPhones sold in the US be manufactured domestically or face a 25% tariff. This comes despite Apple’s previous efforts to appease Trump, including a $500 billion investment in the US and relocating some production from China to India.
Cryptocurrency Market Reacts to Tariff Threats
The cryptocurrency market also felt the ripple effect of Trump’s tariff threats, halting its recent positive run.
Bitcoin (BTC) Dropped Below $110,000
Bitcoin dropped below $110,000 following new tariff threats from United States (US) President Donald Trump on the European Union (EU) and Apple. This comes after Bitcoin had surged nearly 50% from a low below $75,000 in early April to an all-time high of $111,970 on Thursday, according to Binance data. However, these gains tapered on Friday, with Bitcoin down nearly 2%. While signs of bearish sentiments are beginning to rise, some experts, like Nicolai Søndergaard, Research Analyst at Nansen, suggest that Trump’s announcement may be more of a “negotiating tactic” than a likely policy implementation. This slight pullback in the crypto market may only be temporary, reflecting its sensitivity to economic factors.
Ethereum (ETH) and Other Altcoins
Ethereum (ETH) is down 3% on Friday, joining the broader crypto market decline. The top altcoin risks extending its losses to double digits if it falls below the $2,500 level. After a challenging Q1, Ethereum began a recovery in April, rallying over 70% from lows of $1,470 to nearly $2,700, fueled by easing tariff fears and US trade agreements. However, Trump’s renewed threats have introduced uncertainty around inflation, FX tensions, and global liquidity, challenging the recent bullish regime for crypto assets. Ethereum exchange reserves, which had been on a downtrend since April 24, saw a slight uptick of 70k ETH on Friday, per CryptoQuant’s data.
Other altcoins like XRP and Dogecoin also saw declines of nearly 3%, sending the entire crypto market capitalization down by 3.5%. Analysts note that a recent price decline represents a “macro volatility shock, not a breakdown of crypto market structure.” However, Ethereum has been experiencing rising selling pressure whenever prices approached the $2,800 key level, suggesting that many investors may be looking to de-risk at or near their break-even levels.
Regulatory & Institutional News
- SEC Eyes New Crypto Rules: The US Securities and Exchange Commission (SEC) announced plans to introduce clear regulatory frameworks for crypto tokens, including issuance, custody, and trading rules. This aims to bring greater transparency and investor protection to the crypto space.
- Coinbase Acquires Deribit for $2.9B: Coinbase plans to buy Deribit, a crypto derivatives exchange based in Dubai, for $2.9 billion. This vital deal will help Coinbase capitalize on institutional investors’ increasing interest in crypto options trading.
Conclusion and Outlook
The past week has been dominated by renewed trade war rhetoric from President Donald Trump, which has significantly impacted global financial markets. His threats of hefty tariffs on the European Union and Apple have reignited fears of a broader trade conflict, leading to a “risk-off” sentiment across various asset classes.
The market will remain highly sensitive to further statements or actions regarding Trump’s tariff proposals. The June 1 deadline for potential EU tariffs will be a key focal point. Additionally, upcoming US economic data, including Durable Goods Orders, the Fed’s last meeting minutes, the second estimate of GDP, and the Core Personal Consumption Expenditures (PCE) Price Index, will provide further insights into the health of the US economy and the potential direction of monetary policy.
