Gold recorded is on course for a third consecutive week of substantial gains despite coming under pressure on Friday. The precious metal has found support above the $3,000 an ounce level supported by several factors, including lingering geopolitical and economic uncertainties. While the yellow metal has pulled significantly from record highs of $3057 an ounce, it remains bullish and likely to edge higher after the current correction phase.
Gold Pull Back
The metal was down by about 1.4% in Friday’s trading session, but, on course to end the week by 0.7% above the $3007 an ounce level. The rally in the week was mostly fuelled by expectations that the US Federal Reserve is on course to cut interest rates. The precious metal thrives in a low interest-rate environment as investors shun treasuries in favor of the commodity.
Federal Reserve chair Jerome Powell stated that Trump’s initial measures, which included high import tariffs, might have slowed economic growth in the United States and raised inflation. The remarks raised concerns about the US economy, consequently triggering demand for gold as a store of wealth. Trump blasted the Fed for holding rates despite forecasts for two quarter-percentage-point rate cuts by year’s end due to slowing economic growth and rising inflation.
The pullback experienced on Friday could also be attributed to, among other things, traders taking profits on the metal rallying to a 16-record high at the $3057 an ounce level. The rally in the week was also fuelled by heightened geopolitical tensions in the aftermath of Israel’s attack on the Gaza Strip.
Israel effectively abandoned a two-month ceasefire and launched a full-scale air and ground campaign against the major Palestinian militant group, Hamas, in Gaza. It also announced an increase in air, land, and sea strikes to urge the release of remaining hostages.
US President Donald Trump insists that the US is on course to impose reciprocal trade tariffs on April 2, another factor sending jitters in the market and fuelling demand for gold as a haven. Donald Trump has floated plans for a series of US tariffs, including a flat 25% duty on steel and aluminium, which came into effect in February, as well as reciprocal and sectoral tariffs that he said will be imposed on April 2.
Institutional Holding
Central bank buying spree is another catalyst that should continue driving gold prices higher. Gold reserves maintained by the People’s Bank of China increased by 0.16 million troy ounces last month. The central bank began to grow its gold holdings again in November after a six-month hiatus after 18 months of significant purchases.
This action underscores the PBOC’s dedication to diversifying its reserves, aligning with a trend that sees central banks worldwide gravitating towards the precious metal. Additionally, speculation surrounding the United States potentially revaluing its gold reserves has captured market interest, highlighting the growing significance of bullion as a reserve asset.
Profit margins in the mining sector are rising sharply as gold prices have fundamentally increased, driven by a favorable mix of substantial central bank purchases, increased geopolitical tensions, and rapid escalation in US Federal debt, prompting investors to seek alternatives to inflated US stocks and turn towards gold equities.
