US Equity Indexes Trade Mixed as Gold Soars on Dollar Weakness and Trade Fears

The US equity markets remained in a state of divergence on May 5, 2025, with the tech-driven Nasdaq Composite climbing to fresh highs while the broader S&P 500 and blue-chip Dow Jones indexes lagged. Meanwhile, gold futures surged to a record $3,321.30 per ounce on May 6, fueled by a collapsing dollar, escalating trade tensions, and systemic uncertainty. This divergence underscores a market grappling with competing forces: optimism over AI-driven growth and lingering fears of a global economic slowdown.

The Equities Split: Tech Outperforms, Industrials Falter

The Nasdaq’s 1.5% gain on May 5 was driven by stellar earnings from tech giants like Microsoft (up 8% on AI infrastructure spending) and Meta (up 4% on AI-driven revenue forecasts). However, the S&P 500 and Dow faced headwinds from sectors exposed to trade wars. McDonald’s dropped 2% on profit warnings citing tariffs, while industrial stocks like Caterpillar fell 1.5% as China-U.S. steel negotiations stalled.

The divergence highlights a market bifurcation: investors are pouring capital into tech’s “disruptive innovation” while shunning traditional industries tied to trade and manufacturing.

Gold’s Surge: A Perfect Storm of Macro and Geopolitical Risks

Gold’s 2.4% leap on May 6 was the product of multiple converging factors:

1. Dollar Collapse Fuels Demand

The US Dollar Index fell 0.4% on May 5, hitting a three-year low of 99.8, as traders priced in an 80-basis-point rate cut by the Fed starting in July. This weakened greenback made gold cheaper for foreign buyers, driving record futures contracts in COMEX markets.

2. Trade Wars Escalate

President Trump’s 100% tariff on foreign-made movies and steel levies reignited fears of a full-blown trade war. J.P. Morgan analysts noted that such “disruptive” policies create a “debasement hedge environment,” where gold acts as both an inflation shield and a currency hedge. Central banks, including China’s People’s Bank, responded by adding 15 tonnes to their reserves in late 2024.

3. Fed Policy Uncertainty

Despite the S&P 500’s resilience, traders remain skeptical of the Fed’s ability to navigate inflation and growth risks. Deutsche Bank’s prediction of no rate cuts until December clashes with market pricing, creating volatility that gold thrives on.

4. Geopolitical Tailwinds

The Pahalgam terrorist attack and U.S.-China military drills in the South China Sea amplified geopolitical risks. Gold’s “safe haven” status shone brightest here, with J.P. Morgan projecting prices could reach $3,500 by year-end.

Why Equities Struggled Amid Gold’s Rally

While tech stocks soared, broader markets faced headwinds:
- Trade-Dependent Sectors: Automakers like Ford fell 1.8% as tariffs on imported steel raised production costs.
- Consumer Sentiment: The University of Michigan’s confidence index dipped to 68.5 in May, the lowest since 2020, as households grappled with inflation.
- Fed Crosscurrents: While tech investors bet on rate cuts, banks like JPMorgan lost 1.2% as flattening yield curves hurt lending margins.

Conclusion: A Market of Contrasts, but Gold’s Case Is Strong

The May 5-6 market action underscores a critical divide: investors are betting on AI-driven tech growth while hedging against systemic risks via gold. Key data points reinforce this duality:
- Gold’s Technicals: The $3,300 level has become a psychological magnet, with COMEX futures hitting record long positions.
- Central Bank Demand: China’s central bank added 15 tonnes in 2024, part of a global trend of $70 billion in gold purchases since 2020.
- Fed Policy Risks: Traders now price in a 75% chance of a July rate cut, a stark contrast to the Fed’s hawkish rhetoric.

While the Nasdaq’s tech rally may continue, gold’s fundamentals remain unshaken. With trade tensions escalating and the dollar’s decline showing no signs of reversal, the yellow metal is poised to extend its run. As J.P. Morgan’s Gregory Shearer noted, “Gold isn’t just a safe haven—it’s the ultimate insurance policy against a system teetering on instability.”

Investors would be wise to balance portfolios with both tech exposure and gold hedges. The next catalyst? A Fed policy shift or a breakthrough in trade talks—both could redefine this market’s trajectory.