In recent weeks, the precious metal gold has emerged as an undeniable champion within the sector of investments, eclipsing all other asset classes and standing out as the most significant contender in the trading arenaThis ascendance has been propelled by pervasive global trepidation regarding economic growth prospects, giving rise to a burgeoning demand for the safe-haven asset that gold represents.

On the financial landscape depicted on February 17, a notable Monday, spot gold demonstrated a remarkable upward trajectory, climbing roughly $15 to settle firmly at the high of $2,897 per ounceAt one point during the session, it aggressively reclaimed the $2,900 thresholdThe past week, in particular, bore witness to an astonishing surge in gold prices, soaring to $2,942.75, marking a new historical recordWhen examining the weekly trend since the start of the year, it is evident that spot gold has achieved continuous appreciation, registering an over 7% increase since January 20. In stark contrast, the S&P 500 index of American stocks recorded less than a 2% rise during the same span

Advertisements

This remarkable performance places gold in a unique position, underscoring its substantial intrinsic value, especially during periods of market turbulence.

James Steel, a precious metals analyst at HSBC, offers penetrating insights into the dynamics behind rising gold prices, elucidating that “gold tends to soar when trade contracts.” Historical precedence during moments of crisis, such as the COVID-19 pandemic and the global financial turmoil, clearly illustrates scenarios where trade contracts led to substantial increases in gold pricesDuring these critical junctures, tariffs amongst countries rose dramatically, leading to a significant disruption of global trade, thereby creating a fertile environment for gold prices to flourishAmidst hindrances to trade and a murky economic outlook, investors consistently gravitate towards gold as their refuge.

In tandem with these trends, another significant force quietly at play has been the substantial flow of gold from the UK to the United StatesThis movement has led to a significant tightening of liquidity in the London spot gold marketData indicate a remarkable 116% increase in gold inventories at the New York Mercantile Exchange since NovemberThis redistribution of gold resources has altered the supply-demand relationship within the American market, contributing to heightened pressures on gold prices to ascend further.

Concerning the global trade landscape, the recent series of tariff policies instituted by the United States has emerged as a critical variable influencing gold prices

Advertisements

Following the announcement of a 25% tariff on steel and aluminum, the U.S. further declared the intent to impose “reciprocal tariffs.” This strategy aims to establish a balance in tariff rates among trading partnersHowever, should such unilateral trade measures take effect, it could trigger a robust retaliation from multiple countries, resulting in an increase in inter-country tariffsAnalysts widely believe that this escalation in trade frictions will notably dampen economic growth and additionally escalate inflation levels, factors that typically bolster gold pricesNicky Shiels, an analyst at MKS Pamp, asserts candidly that gold operates as a “tariff trade,” citing a significant positive correlation between news regarding tariffs and rising gold prices.

Conversely, while gold's vigorous ascent continues unabated, other trading instruments, including the U.S. dollar and the yield on ten-year government bonds, show signs of retreatTraders speculate that the U.S. tariff policies have adopted a comparatively “gradual approach,” differing from prior market anxietiesThis measured approach has, to some extent, buoyed currencies such as the euro, thereby stunting the surge of the dollar and leading to stagnation in its upward trajectoryMeanwhile, the market’s focus is increasingly shifting toward the risks confronting the economy, and investors are seeking solace in the safety offered by government bonds.

Trevor Greetham, the Head of Multi-Asset at Royal London Asset Management, accentuates gold’s multifaceted value, remarking that it serves simultaneously as a geopolitical hedge, an inflationary safeguard, and a dollar buffer

Advertisements

Advertisements

Advertisements