Gold pares gains as USD strengthens on trade deal ahead of Fed

Gold erased earlier gains to stabilize around $3,340 per ounce on Monday, as renewed strength in the U.S. dollar weighed on the precious metal following the announcement of a significant US-EU trade agreement.

The deal, which imposes a 15% tariff on most European goods—including automobiles, industrial machinery, and computer chips—was seen as a de-escalation from the initially threatened 30% rate but still tilted in favor of U.S. strategic interests.

In addition to trade provisions, the agreement includes a commitment from the European Union to purchase $750 billion in U.S. energy products and step up acquisitions of American-made military equipment, reinforcing transatlantic geopolitical and economic alignment.

While the agreement initially lifted risk sentiment and dampened demand for safe-haven assets like gold, the lack of market clarity and longer-term concerns about global trade frictions have kept investors cautious. Meanwhile, all eyes are now on a key meeting between U.S. and Chinese negotiators scheduled for later in the day, with expectations high that both sides will agree to extend the current tariff truce.

Failure to reach an agreement could lead to renewed tensions between the world’s two largest economies, potentially re-igniting demand for gold as a hedge against uncertainty.

Traders are also bracing for a highly anticipated monetary policy announcement from the Federal Reserve on Wednesday. While the Fed is widely expected to hold interest rates steady, market participants will be scrutinizing Chair Jerome Powell’s comments for any indication of future policy shifts.

With inflation remaining elevated and economic data presenting a mixed picture, any signal of a more hawkish stance could bolster the dollar further and place additional pressure on non-yielding assets like gold.

Adding to the cautious tone in the precious metals market is a packed U.S. economic calendar. Investors are looking ahead to a series of key labor market indicators—including nonfarm payrolls, ADP private employment figures, and the JOLTS job openings report—which could provide fresh insight into the resilience of the labor market.

Furthermore, the core Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, is due later in the week. Markets will be watching closely for signs that new tariffs or broader supply chain disruptions may be driving inflationary pressures higher, potentially complicating the Fed’s policy path.

Overall, gold remains supported by its traditional role as a hedge against geopolitical uncertainty and inflation, but short-term movements are likely to remain tied to dollar dynamics, interest rate expectations, and the outcome of key trade and economic developments this week.