The escalating tensions in trade between China and the US have led to an increase of safe-haven flows.
Gold prices have risen, according to experts. They believe the yellow metal will soon surpass the $3,000 mark per ounce on COMEX.
The gold price on COMEX has already broken records of $2.800 and $2.900 per ounce earlier in the month and remains near $2.890 on Friday.
The precious metal is on course to have its sixth week in a row of gains. Also, the weaker dollar helped to increase demand for yellow metal.
The weaker dollar means that commodities in greenback are cheaper to buy overseas, which increases demand.
Gold has been on a bullish run ever since the middle of December. It was after a rapid sell-off that saw gold drop 5% in a single week below $2600. David Morrison is a senior analyst with Trade Nation. He said that this was the last significant drop in gold prices.
Trump spurs safe-haven demand
Gold has reached new record levels this year, even though it is still only February. EwaManthey, commodities analyst at ING Group said that tariff concerns about higher inflation risk and slower economic growth is driving demand for gold as a safe haven asset.
Tariffs of 10% on China went into effect as scheduled, while tariffs for Canada and Mexico have been delayed by a whole month. China responded by increasing tariffs on various US products.
Manthey added
Gold prices will remain high despite the US reaching a trade agreement with Canada and Mexico. Gold will remain a safe haven if trade tensions increase and more retaliatory actions are taken.
Fears of a renewed conflict in the Middle East following US President Donald Trump’s claims that America will take over Gaza Strip also drove demand for gold.
In the weeks to come, the uncertainty surrounding tariffs will probably remain high. Experts expect gold to remain well supported.
Gold purchases by central banks
Gold’s 2024 rally was fuelled by purchases from central banks, notably China. Central banks will continue to buy gold as geopolitical tensions, economic uncertainties and other factors encourage them.
According to the latest World Gold Council data, central banks purchased over 1,000 tons gold last year for a third year in a row.
The fourth-quarter buying spree reached 333 tonnes, resulting in an annual net total of 1 045 tons.
The National Bank of Poland led this trend by adding 90 tons to its reserve, but demand for the product was seen across emerging markets banks.
Manthey stated that “central banks’ appetite for gold was also driven by countries’ concerns about Russian style sanctions against their foreign assets following decisions by the US, Europe and Russia to freeze Russian assets as well as changing strategies regarding currency reserves.”
We expect the central banks will continue to be buyers in future.
Gold prices could continue to increase due to the increased US gold stocks.
COMEX’s gold inventory is at its highest level since 2022, due to fears over tariffs and arbitrage opportunities that are profitable.
The US gold exports to Switzerland are at their highest level since the Russian invasion of Ukraine.
This is probably due to the high premium on gold futures traded at the Comex in comparison to spot prices. Carsten Fritsch is a commodity analyst with Commerzbank AG. He said that this makes the Comex an attractive place to buy gold, as gold elsewhere becomes scarce.
US Fed Rate Cuts
Gold market participants are currently most concerned about the pace of Federal Reserve policy easing. Gold benefits from lower borrowing costs, since it doesn’t yield any interest.
After cutting rates by 100 basis point in 2024, the Fed did not want to further reduce rates in January.
According to ING’s US economists, the recent changes in tariffs will likely continue through to 2025’s first half.
Manthey stated that if the central bank was forced to keep rates higher for longer it could reduce gold’s appeal.
Only two rate reductions are expected by experts in 2025. Last year, the Fed cut rates three times.
The Fed may consider further rate cuts if trade tensions gradually ease in the second half of 2025. The Fed could consider further rate cuts if trade tensions gradually ease in 2025.
There are more records to come
Manthey stated that they believe the price of gold is set to reach new records this year.
Manthey says that despite the fact that a strong dollar and a tightening monetary policy may eventually pose some challenges to gold, there will be favourable macroeconomic conditions for it due to falling interest rates, geopolitical tensions and diversification of foreign reserves.
ING anticipates that gold prices will average 2,800 dollars per ounce in January and March, with a maximum of $3,000 an ounce.
Morrison, of Trade Nation, believes, however, that the price of gold may fall in coming weeks due to its current overbought status.
He said: “It is worth noting that gold has returned to overbought levels, as indicated by the MACD daily (moving-average convergence and divergence).”
Are gold prices on the verge of a crash? Who knows? “But bullish traders might want to be cautious, at least till this overbought condition has moderated to some degree,” Morrison said.
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