Record Highs Amid Trade War Concerns

By the conclusion of Friday’s trading, gold had surged more than 6.5%, hitting a peak of $3,237 per troy ounce. This surge represents the most significant weekly gain since the early days of the Covid-19 pandemic in March 2020.

The Impact of Tariffs on Investor Sentiment

The recent panic triggered by President Donald Trump’s aggressive tariff policies has led investors to withdraw from conventional safe havens such as US Treasuries, causing equities to tumble and the dollar to plummet to three-year lows against the euro.

Alexander Zumpfe, a bullion trader at Heraeus, stated, “A broad sell-off in US equities and Treasuries has shaken confidence in American assets, prompting investors to seek safety in gold.” The ongoing trade war, coupled with rising recession fears and climbing bond yields, has further intensified this shift.

Gold as a Hedge Against Economic Instability

The weakening value of the US dollar has made gold, which is priced in dollars, more appealing to international buyers. As Peter Mallin-Jones, an analyst at Peel Hunt, noted, “You hold gold when you are worried about the system breaking.” The traditional safe haven of Treasuries is losing its charm, particularly as interest rates rise in a seemingly unstable market environment.

Strong Demand and Future Projections

This year has witnessed an unprecedented rally in gold prices, driven by heightened investor interest as well as significant physical purchases from central banks diversifying away from the dollar. Notably, the first quarter of this year saw a surge in inflows into gold-backed exchange-traded funds, marking the highest levels since the onset of the pandemic.

Will Rhind, CEO of GraniteShares, highlighted the uniqueness of the current market situation: “We are in this highly unusual situation, where the flight to traditional safe havens hasn’t been working.” Rising Treasury yields amidst market anxiety have disrupted traditional trust in these assets.

Price Forecasts and Continued Demand

Demand for physical gold remains robust, particularly in China where buyers are willing to pay a premium over international spot prices, reflecting strong market appetite. In light of these dynamics, UBS has adjusted its gold price forecast, raising it to $3,500 per troy ounce over the next year, an upward revision from an earlier prediction of $3,000.

According to UBS analysts, “We expect additional demand from central banks, institutions, and investors following current events.”