The market is worried that the US tax cut bill will trigger a fiscal crisis, and the gold price is expected to close up nearly 2% on a weekly basis
2025-07-04 15:28:54
Spot gold rose slightly in the Asian and European session on Friday (July 4), and is currently trading around $3,338/ounce, up about 0.37%, and is expected to record a considerable increase of nearly 2% on a weekly basis. The reason behind this wave of gold price increases is that the large-scale tax cut and spending bill promoted by US President Trump was successfully passed by Congress, triggering market concerns about the US fiscal situation. At the same time, the continued weakness of the US dollar index further provided support for the rise in gold prices. As a traditional safe-haven asset, gold continues to be supported by bargain hunting.
Congress passes tax cut bill, Trump fulfills campaign promise
On July 3rd, local time, the U.S. Congress passed a highly anticipated large-scale tax cut and spending bill (the "Big and Beautiful" bill). This bill not only makes Trump's 2017 tax cut policy permanent, but also provides financial support for his plan to combat illegal immigration, while fulfilling a new round of tax cuts promised during the 2024 campaign. The passage of this bill marks an important milestone in Trump's economic policy. However, this seemingly favorable policy has caused quite a stir in the financial market.
As fiscal deficits intensify, gold becomes the first choice for safe havens
The bipartisan Congressional Budget Office (CBO) released a report stating that the tax cut bill is expected to add another $3.4 trillion to the US debt of $36.2 trillion over the next decade. This huge fiscal burden has exacerbated market concerns about the US economic outlook. Marex analyst Edward Meir pointed out: "This bill does not improve the US fiscal situation. In the long run, this will put pressure on the US dollar, and gold as a safe-haven asset will benefit from it."
The U.S. dollar index weakened slightly on Friday and is currently trading around 96.95, down about 0.15%. It is likely to close down for the second consecutive week, which makes gold more attractive to overseas buyers and provides support for gold prices.
Tariff rate letter will be sent out soon
After the passage of the "Big, Beautiful" bill, Trump said the United States will begin sending letters to countries on Friday to clarify the specific tariff rates imposed on imported goods from each country. This move is considered an important step for Trump to fulfill his "America First" promise during the campaign. However, the market is generally concerned that aggressive tariff policies may lead to intensified global trade frictions, which in turn will put further downward pressure on the US dollar.
The linkage effect between tariffs and gold prices
Marex analyst Meir further analyzed that if Trump insists on implementing the tariff policy before July 9, the US dollar may continue to weaken, while gold prices are expected to rise further. As a safe-haven asset, gold tends to perform strongly when geopolitical and economic uncertainties increase. At present, market expectations of Trump's tariff policy have begun to push up investment demand for gold.
Meanwhile, the U.S. labor market data for June brought a glimmer of warmth to the market. The data showed that U.S. companies added 147,000 jobs, exceeding market expectations, and the unemployment rate also fell to 4.1%. This strong economic performance further consolidated the Fed's reason to maintain the current interest rate level. Traders generally expect the Fed to cut interest rates only twice before the end of the year, which means that the high interest rate environment may continue in the short term, which makes gold bulls cautious.
Despite the continued rise in gold prices, physical gold demand in major Asian markets has been sluggish. Due to high prices, consumer buying interest has clearly weakened. In India in particular, the reduction in gold imports has led to a narrowing of the market discount. The weak demand in the Asian market is in sharp contrast to the risk aversion in global financial markets, highlighting the complexity of the current gold market.
Overall, fiscal concerns caused by the US tax cut bill, the weakening of the US dollar, and the potential impact of Trump's tariff policy are jointly driving the upward trend of gold prices. The attractiveness of gold as a safe-haven asset is increasing, especially against the backdrop of increasing global economic uncertainty. In the future, as tariff policies are gradually implemented and the Federal Reserve's monetary policy becomes clearer, the gold market may have more opportunities to rise.
(Spot gold daily chart, source: Yihuitong)
At 15:26 Beijing time, spot gold was trading at $3,338.89 per ounce.
US tax cut bill: fiscal risks cause market shock
Congress passes tax cut bill, Trump fulfills campaign promise
On July 3rd, local time, the U.S. Congress passed a highly anticipated large-scale tax cut and spending bill (the "Big and Beautiful" bill). This bill not only makes Trump's 2017 tax cut policy permanent, but also provides financial support for his plan to combat illegal immigration, while fulfilling a new round of tax cuts promised during the 2024 campaign. The passage of this bill marks an important milestone in Trump's economic policy. However, this seemingly favorable policy has caused quite a stir in the financial market.
As fiscal deficits intensify, gold becomes the first choice for safe havens
The bipartisan Congressional Budget Office (CBO) released a report stating that the tax cut bill is expected to add another $3.4 trillion to the US debt of $36.2 trillion over the next decade. This huge fiscal burden has exacerbated market concerns about the US economic outlook. Marex analyst Edward Meir pointed out: "This bill does not improve the US fiscal situation. In the long run, this will put pressure on the US dollar, and gold as a safe-haven asset will benefit from it."
The U.S. dollar index weakened slightly on Friday and is currently trading around 96.95, down about 0.15%. It is likely to close down for the second consecutive week, which makes gold more attractive to overseas buyers and provides support for gold prices.
Trump's tariff policy: The dollar is under pressure, and gold is supported again
Tariff rate letter will be sent out soon
After the passage of the "Big, Beautiful" bill, Trump said the United States will begin sending letters to countries on Friday to clarify the specific tariff rates imposed on imported goods from each country. This move is considered an important step for Trump to fulfill his "America First" promise during the campaign. However, the market is generally concerned that aggressive tariff policies may lead to intensified global trade frictions, which in turn will put further downward pressure on the US dollar.
The linkage effect between tariffs and gold prices
Marex analyst Meir further analyzed that if Trump insists on implementing the tariff policy before July 9, the US dollar may continue to weaken, while gold prices are expected to rise further. As a safe-haven asset, gold tends to perform strongly when geopolitical and economic uncertainties increase. At present, market expectations of Trump's tariff policy have begun to push up investment demand for gold.
US economic data: Strong employment, Fed remains on hold
Meanwhile, the U.S. labor market data for June brought a glimmer of warmth to the market. The data showed that U.S. companies added 147,000 jobs, exceeding market expectations, and the unemployment rate also fell to 4.1%. This strong economic performance further consolidated the Fed's reason to maintain the current interest rate level. Traders generally expect the Fed to cut interest rates only twice before the end of the year, which means that the high interest rate environment may continue in the short term, which makes gold bulls cautious.
Asian Markets: High gold prices curb physical demand
Despite the continued rise in gold prices, physical gold demand in major Asian markets has been sluggish. Due to high prices, consumer buying interest has clearly weakened. In India in particular, the reduction in gold imports has led to a narrowing of the market discount. The weak demand in the Asian market is in sharp contrast to the risk aversion in global financial markets, highlighting the complexity of the current gold market.
Conclusion: The prospect of gold market is promising
Overall, fiscal concerns caused by the US tax cut bill, the weakening of the US dollar, and the potential impact of Trump's tariff policy are jointly driving the upward trend of gold prices. The attractiveness of gold as a safe-haven asset is increasing, especially against the backdrop of increasing global economic uncertainty. In the future, as tariff policies are gradually implemented and the Federal Reserve's monetary policy becomes clearer, the gold market may have more opportunities to rise.
(Spot gold daily chart, source: Yihuitong)
At 15:26 Beijing time, spot gold was trading at $3,338.89 per ounce.
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