Escalating trade tensions between the US and China have paved the way for increased safe-haven inflows.
This has benefited gold prices, and experts believe that the yellow metal is within touching distance of breaching the $3,000 per ounce mark on COMEX.
Gold prices on COMEX have already breached record levels of $2,800 and $2,900 per ounce mark earlier this month, and remain near the $2,890 level on Friday.
On Friday, the precious metal was on track for its sixth consecutive week of gains. The weakness in the dollar also helped generate more demand for the yellow metal.
Source: ING Research
A weaker dollar makes commodities priced in the greenback cheaper for overseas buyers, thereby lifting demand.
“Gold has put in a terrific bull run since mid-December. This was when it fell below $2,600 following a sharp sell-off which saw gold lose 5% over the space of a week. That was the last time that gold suffered a significant pullback,” said David Morrison, senior market analyst at Trade Nation.
Trump spurs safe-haven demand
“It is only February, and gold has already hit a series of fresh record highs this year. Tariff concerns that risk higher inflation and slower economic growth are spurring demand for safe haven assets like gold,” Ewa Manthey, commodities strategist at ING Group, said.
The 10% tariffs on China were implemented as planned, but the tariffs on Canada and Mexico were postponed for a month. China responded to the tariffs by imposing tariffs on a variety of US goods.
Manthey added:
Despite the US coming to a deal with Canada and Mexico, the uncertainty over trade and tariffs will continue to buoy gold prices. If trade tensions intensify and we see more retaliatory measures, safe haven demand for gold will continue.
Haven demand for gold was also driven by fears of renewed tensions in the Middle East, following US President Donald Trump’s claim that America would take over the Gaza Strip.
Uncertainty surrounding the tariff narrative will likely remain high in the coming weeks. This is expected to keep gold prices well supported, according to experts.
Central banks’ gold purchase
The 2024 gold rally was fueled by central bank purchases, particularly from China. As geopolitical tensions and economic uncertainty motivate central banks to increase their allocation of safe-haven assets, their buying will likely continue.
The World Gold Council’s latest data reveals that last year marked the third consecutive year of central banks purchasing over 1,000 tons of gold.
This buying spree accelerated significantly in the fourth quarter, reaching 333 tons, culminating in a net annual total of 1,045 tons.
While the National Bank of Poland spearheaded this trend with a 90-ton addition to its reserves, demand was evident across a wide array of emerging market banks.
“Central banks’ healthy appetite for gold is also driven by concerns from countries about Russian-style sanctions on their foreign assets in the wake of decisions made by the US and Europe to freeze Russian assets, as well as shifting strategies on currency reserves,” Manthey said.
Looking ahead, we expect central banks to remain buyers.
Additionally, gold prices may continue to rise due to increased US gold stockpiles.
COMEX gold inventories are at their highest since 2022 due to tariff fears and profitable arbitrage opportunities.
Gold exports from Switzerland to the US are also at their highest since Russia’s invasion of Ukraine.
“The high price premium of gold futures on the Comex compared to the spot market is likely to have contributed to this. This makes gold deliveries on the Comex attractive, while gold is becoming scarce elsewhere,” Carsten Fritsch, commodity analyst at Commerzbank AG, said.
US Fed rate cuts
The pace at which the Federal Reserve eases its policy is the primary concern in the gold market currently. Reduced borrowing costs are beneficial to gold, as it does not yield interest.
The Fed kept policy rates unchanged in January after cutting interest rates by 100 basis points in 2024 and indicated that it was not eager to make further cuts.
Source: ING Research
The recent developments surrounding tariffs are likely to keep it that way through the first half of 2025, according to ING’s US economists.
“If the central bank is forced to maintain higher rates for longer, this could undermine gold’s appeal,” Manthey said.
Experts have been anticipating only two interest rate cuts in 2025. The Fed had cut rates thrice last year.
If there is a gradual de-escalation of trade tensions later in 2025, the Fed could think about cutting rates further. This is likely to again support gold and prices could gain momentum.
More records in sight
“We believe gold will hit more record highs this year, with $3,000/z now in sight,” Manthey said.
While a stronger dollar and tighter monetary policy could eventually present some challenges, the overall macro backdrop will remain positive for gold due to declining interest rates, ongoing geopolitical tensions, and foreign reserve diversification, according to Manthey.
ING expects gold prices to hit $3,000 per ounce during the current quarter, and average $2,800 per ounce throughout January-March.
However, Trade Nation’s Morrison believes that gold could experience a slump in the coming weeks, given prices are currently in overbought territory.
“It’s worth mentioning as gold is back into overbought territory, as measured by the daily MACD (moving average convergence and divergence),” he said.
“Are gold prices about to slump? Who knows. But bullish traders may want to exercise some caution, at least until this ‘overbought’ condition moderates to a degree,” Morrison added.
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