Gold prices rallied sharply on Friday, pushing spot prices above the $5,000 per ounce threshold. The surge was fueled by a combination of weaker-than-expected U.S. economic data and a significant Supreme Court ruling on trade policy, which together altered market expectations for Federal Reserve interest rate moves.
Economic Data Fuels Rate Cut Speculation
The primary catalyst was a disappointing U.S. Gross Domestic Product report. Data indicated fourth-quarter economic growth slowed to an annualized pace of 1.4%, reinforcing concerns about a cooling economy. Concurrently, the December Personal Consumption Expenditures (PCE) price index, a key inflation gauge monitored by the Fed, showed a 0.4% increase. This mix of slowing growth and persistent inflation pressures kept alive the possibility of future Federal Reserve rate cuts to stimulate the economy.
By late morning trading, spot gold had advanced 1% to $5,047.10 per ounce. The more actively traded April gold futures contract saw a stronger gain of 1.4%, reaching $5,065.70. The market's reaction underscores the ongoing tug-of-war between fears of an economic slowdown and concerns about sticky inflation influencing central bank policy.
Supreme Court Ruling Adds to Market Volatility
Adding a layer of complexity was a Supreme Court decision that struck down a set of global tariffs previously imposed under emergency powers. This ruling, which nullified measures including the so-called "Liberation Day" tariffs that imposed a minimum 10% duty on all U.S. imports, injected fresh uncertainty into markets. Analysts noted the decision resolved a prolonged policy overhang, initially boosting risk appetite for equities as investors cheered the removal of trade barriers.
"Markets are responding with a greater risk appetite for equities because we finally got something resolved," observed Todd Schoenberger, chief investment officer at CrossCheck Management. The Penn-Wharton Budget Model estimated that over $175 billion collected under these tariffs might need to be refunded, a significant fiscal implication.
Broader Market Context and Reactions
The broader financial landscape reflected these crosscurrents. The U.S. Dollar Index softened to 97.74, though it remained on track for its strongest weekly advance since October. The yield on the benchmark 10-year U.S. Treasury note edged higher to 4.094%. Gold, which offers no yield, often faces headwinds when interest rates rise, as higher yields increase the opportunity cost of holding non-interest-bearing assets.
Independent metals trader Tai Wong characterized the court's tariff decision as "good for stocks and bad for gold," highlighting the traditional inverse relationship between risk assets and safe havens. However, the weak GDP data provided a countervailing force strong enough to drive bullion higher.
The trading week had been volatile for the precious metal. Spot prices had dropped over 2% to $4,841.74 on Tuesday before recovering to above $4,992 by Wednesday afternoon. Marex analyst Edward Meir pointed to underlying "nervousness" in the market stemming from geopolitical tensions, noting that February trading had remained within "a very tight trading range."
Precious Metals Complex and Equity Divergence
Other precious metals also posted gains, with silver leading the advance. Platinum and palladium prices ticked higher as well, reflecting a mix of safe-haven demand and industrial buying interest. Interestingly, shares of gold mining companies did not fully mirror the metal's strength. On the TSX, gold stocks declined 1.3%, with the broader mining group down 0.7%, despite the rise in underlying commodity prices.
Michael Dehal, senior portfolio manager at Raymond James, suggested the removal of tariffs could "add deflationary pressure," potentially complicating the Federal Reserve's economic assessment and policy path.
Forward Outlook and Key Risks
Looking ahead, traders are monitoring several risk factors. Attention is focused on potential new White House efforts to reintroduce tariffs through alternative legal channels, as well as developments in ongoing U.S.-Iran tensions. Such geopolitical surprises could rapidly increase demand for safe-haven assets like gold, even if the interest rate environment appears unfavorable.
The immediate risk for gold is that persistent inflation drives bond yields steadily higher, diminishing the metal's appeal. This could trigger a swift price decline, especially if the tariff ruling holds and investor capital continues flowing toward equities over traditional havens.
The Federal Reserve's next policy meeting on March 17-18 will be a critical event, as officials will release updated economic projections and interest rate forecasts. Current market pricing suggests investors expect the first quarter-point rate cut to occur at the June 16-17 gathering. Until then, gold is likely to remain sensitive to every data point influencing the Fed's calculus.
