Gold, traditionally seen as a safe-haven asset during times of economic uncertainty, gained momentum on May 5, 2025, amid a weaker dollar and investor anticipation of key economic events. The price of spot gold rose by 0.7% to $3,261.59 per ounce, while U.S. gold futures surged 0.8%, reaching $3,269.60. This surge in gold prices highlights the interconnectedness between currency fluctuations and the precious metal market.

The Dollar’s Weakness and Its Impact on Gold

One of the key factors driving gold’s upward momentum was the weakening of the U.S. dollar. On May 5, 2025, the dollar fell by 0.3% against its rival currencies, making gold more attractive for holders of other currencies. This inverse relationship between gold and the dollar is well-known in financial markets. When the dollar weakens, gold becomes cheaper for foreign investors, resulting in increased demand for the precious metal.

KCM Trade’s Chief Market Analyst, Tim Waterer, noted that the U.S. dollar's subdued performance ahead of the Federal Reserve's policy meeting was enabling gold to rise. “We may see gold continue to operate in the $3,200-$3,350 range ahead of the Fed meeting,” he said, adding that any new headlines regarding trade deals could introduce volatility to the market. This suggests that the gold market is closely watching global trade negotiations and U.S. domestic policies.

Expectations from the Federal Reserve’s Upcoming Meeting

The U.S. Federal Reserve's policy decisions are also a crucial factor influencing the price of gold. Investors are closely monitoring the upcoming Fed meeting later this week for clues about future monetary policy, especially after the April jobs report from the U.S. Labor Department showed that the economy had added more jobs than expected. This report sparked speculation that the Federal Reserve may cut interest rates by 80 basis points in July 2025, which would make gold more attractive as a non-yielding asset.

Gold as a Hedge Against Inflation and Uncertainty

Gold tends to perform well in low-interest-rate environments, as investors seek assets that do not yield interest but act as a hedge against inflation. In times of uncertainty, especially when there is volatility in stock markets or currency fluctuations, gold provides a stable store of value. As U.S. President Donald Trump emphasized on May 3, 2025, his administration is prioritizing securing a fair trade deal with China, which is one of the primary drivers of global uncertainty. These concerns, combined with U.S. monetary policy shifts, are likely to keep gold in demand.

President Trump’s Trade Policy and Its Influence on Gold

On the same day, President Trump made headlines by reaffirming that Jerome Powell, the current Chairman of the Federal Reserve, would remain in his position until his term ends in May 2026, despite his frequent public criticisms of Powell's stance on interest rates. Trump also reiterated his call for the Fed to cut interest rates, highlighting his administration’s focus on achieving fair trade deals with countries like China.

These ongoing trade negotiations, especially the U.S.-China trade war, continue to cast a shadow over global economic growth. Gold’s role as a safe-haven asset is expected to grow if trade tensions escalate, further boosting its appeal. As the Chinese market closed for its Labour Day holiday, all eyes will be on May 6, 2025, when it reopens and any developments in trade talks could lead to market shifts, including in the price of gold.

Performance of Other Precious Metals

While gold gained the most in the precious metals group, other metals also experienced slight fluctuations. Spot silver rose 0.1% to $31.99 per ounce, showing a modest increase alongside gold. However, platinum fell 0.4% to $956.09, and palladium eased by 0.1%, trading at $952.63. The movements in these metals are also closely tied to the broader economic outlook, with platinum and palladium often used in industrial applications, making them sensitive to global demand forecasts.

In conclusion, the weaker U.S. dollar, the anticipation surrounding the Federal Reserve's interest rate decision, and the ongoing trade policy negotiations are playing pivotal roles in the movements of gold prices. As we approach the Fed's policy meeting and await developments in trade talks, the gold market is likely to remain volatile but favorable for investors seeking refuge in safe-haven assets.

The combination of these economic factors suggests that gold prices could continue to rise in the short term, potentially reaching the projected range of $3,200 to $3,350 per ounce. With the continued focus on U.S. economic policies and global trade negotiations, gold’s position as a hedge against inflation and global uncertainties remains strong.

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