Gold is staring at its biggest loss in more than nine weeks. Its prospects in the market were hurt by a strengthening US dollar. The yellow metal struggled to find support above the $2900 an ounce level for the better part of the week as the dollar strengthened above the 107 level against the basket of other major currencies.
The bullion has lost nearly 2.5% for the week, dropping to about $2845 an ounce. It follows similar losses in the cryptocurrency market whereby Bitcoin continued to edge lower, having fallen to two-month lows of nearly $80,000 a coin.
Gold’s push lower is part of a natural correction that gathered momentum as market volatility forced leveraged funds to reduce their exposure. Despite the significant losses in the market, the yellow metal is poised for its second straight month of gains above the $2,800 an ounce level.
US Buying Spree
The precious metal is already up by more than 10% for the year, and its prospects in the market have been strengthened by strong demand amid heightened geopolitical and economic uncertainty. The US threat to impose trade tariffs on Mexico, Canada, and China is one factor that has driven the metal higher.
Consequently, robust demand for gold in the US is draining bullion from certain countries as traders rush to accumulate it ahead of President Donald Trump’s implementation of tariffs on Canada and Mexico. Adrian Ash, the research director at Bullion Vault, believes there is a surplus of gold in the vaults of New York.
Since December of the previous year, over 600 tons, equating to nearly 20 million ounces of gold, have been moved into the vaults of the city, based on information from the World Gold Council. John Reade, the market strategist for Asia and Europe at the World Gold Council, stated that such a volume of gold is not typically found in New York.
Hedge Against Inflation
Additionally, gold has rallied as a hedge against inflation. The prospects of trade tariffs continue to fuel suggestions of heightened inflation as countries around the globe resort to protectionist measures that could hurt the free flow of goods. Additionally, US sanctions on China following its invasion of Ukraine have also had a hand in pushing gold to record highs.
The US imposed sanctions on Russia as one of the ways of forcing it to halt the war, forcing many central banks to resort to gold-buying sprees to bolster foreign reserves and diversify from the dollar. The gold buying spree was further exacerbated by concerns that it would be challenging to access assets dominated in the US dollars, especially treasury bonds in Russia being sanctioned.
Global central banks have been acquiring gold in recent years, driving the valuable metal to unprecedented heights. With ongoing geopolitical unrest, inflation, and trade worries, bullion may soon hit $3,000 for the first time.
Gold Central Banks Buying
For 15 consecutive years, central banks have been net purchasers of the precious metal. However, following the onset of the Russia-Ukraine conflict, they significantly increased their buying, adding a record 1,082 metric tons in 2022, as reported by the World Gold Council. In 2024, they added over 1,000 metric tons of bullion for the third year in a row, approximately double the pace seen prior to the conflict. Gold is broadly regarded as a safe-haven investment during uncertain times.
During the previous summer, a report from the World Gold Council indicated that 29% of central banks anticipate increasing their gold reserves within the coming year. Participants in the survey pointed to gold’s function as a safe haven asset during crises and its effectiveness as a hedge against inflation as the primary motivations for this expectation.
