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Gold skyrocketed earlier this week to form new highs around $3,057. The surge came because of increased safe haven demand due to geopolitical tensions and economic uncertainties.
Traders and investors turned to gold as a safe-haven asset due to trade war tensions that could lead to more weakness in the US economy.
With inflation well above the Fed’s 2% target, gold has become more valuable as a popular hedge against inflation.
Trump Tariffs Increase Economic Uncertainty
Investors are concerned about the possibility of an economic slowdown and rising risks of recession caused by President Trump’s tariffs, which could also increase inflation.
25% trade tariffs were imposed on imported aluminum and steel imports from Canada. Tariffs on China are in effect with 20% levies on Chinese imports. In response, China hit back with retaliatory tariffs ranging from 10% to 15% on US goods. ⁽¹⁾
These tariffs have shaken investor, consumer and business confidence. These measures could disrupt global trade, fuel inflation risks and increase gold’s appeal as a store of value.
New Geopolitical Tensions Emerge
Renewed geopolitical tensions in the Middle East with rising global economic risks and tariff uncertainties could lead to global instability, with gold being used as a hedge against uncertainties. ⁽²⁾
Risk appetite remains dampened, even though talks between Trump and Russian President Vladimir Putin relieved some of traders’ stress with Putin agreeing to a 30-day halt on attacking Ukraine energy facilities. ⁽³⁾
Dovish Fed
The Federal Reserve kept rates steady at 4.5% yesterday, acknowledging that labor market conditions remain solid, but that inflation remains “somewhat” elevated, reaffirming its commitment to monitoring risks to both sides of its dual mandate. Powell stated tariffs could delay progress on lowering inflation. ⁽⁴⁾
The Fed’s economic projections hinted that officials expect two rate cuts this year. The Fed funds rate is forecast to remain at 3.9%. Other projections, like inflation and the unemployment rate, were forecasted to the upside. ⁽⁵⁾
On the other hand, the US economy is expected to slow below the 2% threshold, indicating it is becoming slightly fragile amid President Trump’s trade policies. ⁽⁶⁾
Outlook
Gold has already surged over 15% year-to-date. The precious metal could continue its momentum if geopolitical tensions and trade wars continue, acting as a catalyst for safe-haven demand.
A dovish Fed has already stated that two rate cuts are expected this year. This indication could also strengthen gold’s appeal, especially if US economic data continues to weaken.
