Gold is on course to post another record high at the back of a seventh consecutive week of gains. The precious metal has powered through the $2,930 an ounce level, with buyers in full control ahead of a potential rally to the $3,000 an ounce level. The prospect of US President Donald Trump imposing reciprocal tariffs on every country taxing US imports is one of the factors driving gold prices higher.
Trade Tariffs Concerns
Trump’s instruction to his economic team to find ways of imposing reciprocal tariffs has heightened concerns about a potential global trade war. Some countries that could be targeted include China, Japan, South Korea, and Europe. The risk of a heightened trade war has already triggered uncertainty in the market, prompting traders and investors to scamper for safety in safe havens, including gold.
Gold is always seen as a safe haven against inflation and economic uncertainties, as the one Trump is about to trigger with a new string of trade tariffs. Gold had come under pressure mid-week, and Federal Reserve Chair Jerome Powell reiterated that they are not rushing to cut interest rates as the economy is still strong.
The prospects of Trump imposing tariffs could trigger heightened inflation that could force the Fed to hold interest rates high for long. Higher interest rates work against higher gold prices. That’s because investors turn their attention to yielding assets like treasuries and bonds at the expense of gold. On the other hand, whenever central banks cut interest rates, gold prices tend to rally.
China Gold Buying
Meanwhile, gold has remained upbeat despite the Fed refraining from cutting the benchmark rate on heightened purchasing from central banks. Central bank demand has been more robust than previously believed as officials around the globe aim to diversify their reserves away from the US dollar.
Even as the price of gold rose to all-time highs in January, China’s central bank increased its gold reserves for a third consecutive month by 0.16 million troy ounces. After a 6 month halt, the central bank resumed adding gold reserves in November.
The action demonstrates PBOC’s dedication to diversifying its reserves despite gold’s historically high price. This year, demand is expected to be driven by geopolitical uncertainties, and the PBOC is joining a long list of other central banks in adding gold to their reserves.
While China’s central bank buying spree has impacted driven prices higher, Chinese consumers have also played a role. Chinese retail traders and consumers have been buying the precious metal amid growing uncertainty in the global economy and the threats posed by the US changing trade policies.
Gold bars and coins, which have more noticeable hedging and value-preserving qualities, saw strong sales in addition to gold jewelry, particularly during the Spring Festival holidays. Pan Helin, a member of the Ministry of Industry and Information Technology’s Expert Committee for the Information and Communication Economy, told the Global Times that the strong demand for gold among Chinese consumers also demonstrated the country’s thriving consumption market as a result of numerous policies to increase consumption.
