Gold declines for a third day amid trade optimism, but long-term risks linger

The metal’s losses come amid growing optimism about the potential for a series of trade agreements that could ease fears of a global trade war.

This follows several recent deals, the latest of which was reached with Japan.

Following the Japan agreement, a deal with the European Union may also be imminent.

The Financial Times reported that the U.S. and the EU are close to agreeing on a 15% tariff on European imports.

Such developments are fuelling hopes of a broader agreement with China as well, which could further dispel the market’s uncertainty surrounding the global economic outlook. In turn, this is weighing on gold by stripping away part of its geopolitical risk premium.

Nevertheless, even if the coming days see markets buoyed by new trade deals, longer-term risks are expected to linger in the minds of investors, providing a continued source of demand for safe-haven assets like gold.

The Wall Street Journal Editorial Board has warned that the recent 15% tariff agreement with Japan could carry long-term strategic costs in the form of rising prices and mounting pressure on consumer and business sentiment. The prevailing optimism, it argues, was more about relief from worse-case outcomes than genuine enthusiasm.

Meanwhile, The New York Times cited economists who noted that the full impact of tariffs often takes time to materialize through higher prices. The Times also quoted the Competitive Enterprise Institute as calling the U.S.-Japan deal a “lose-lose” agreement for both parties.

Although the effects of the tariffs are already being felt, U.S. companies are currently absorbing the costs rather than passing them on to consumers, at least broadly, for fear of losing ground in a highly competitive environment. Still, those costs are expected to eventually translate into higher prices, according to The Journal.

This was supported by yesterday’s S&P Global PMI report, which pointed to mounting price pressures in both the manufacturing and services sectors during July. It also noted a second consecutive monthly decline in business sentiment.