Gold is on the brink of the $3,000 an ounce level in response to soaring global trade war tensions. The latest factor driving gold prices is the US threatening to impose 200% tariffs on European Union goods. Haven appeals have skyrocketed for the better part of the week as the trade wars hit a new level.
Gold Rally
The precious metal has already powered through the $2,985 an ounce level, recording eight consecutive days of price gains. The escalating tariff battle with the EU instituting retaliatory tariffs and Canada adding new levies is helping fuel demand for the safe haven. Investors are using safe-haven gold once more as a hedge against portfolio volatility as a result of the risk-off market position, which reflects their forecasts that trade tensions would likely worsen before they subside.
Gold, an asset investors choose in geopolitical and economic unrest, has benefited from U.S. President Donald Trump’s shifting trade policy. According to U.S. Commerce Secretary Howard Lutnick, implementing Trump’s economic ideas would make a recession worth it, something that has sparked fears in the market.
Trade Wars Concerns
In his multifaceted trade war, President Donald Trump threatened to impose a 200% tariff on imports of European wines and spirits after the European Union imposed a 50% tax on American whiskey exports in response to the United States’ blanket tariffs on steel and aluminium.
Gold is viewed as a hedge against inflation and political dangers. In times of economic and geopolitical unrest, non-yielding gold is regarded as a safe investment since it flourishes in an atmosphere with low interest rates.
The U.S. Federal Reserve’s monetary policy meeting is the next item on the agenda. Next Wednesday, the central bank is anticipated to maintain its benchmark overnight interest rate between 4.25% and 4.50%. Despite pausing its easing campaign in January, the central bank has lowered rates by 100 basis points since September.
Central Bank Purchases
Central banks continue to be crucial to the demand for gold worldwide, and changes in the economy and geopolitics impact their buying habits. Their net buying trend, which has been particularly noticeable since 2022, has been strengthened by the transition from military conflict to more general economic difficulties.
Central banks reported net purchases of 18t in January, demonstrating their sustained strong interest in gold. Gold’s strategic value in official reserves is underscored by the ongoing purchases, especially as central banks manage increased geopolitical threats. The world’s largest gold-backed exchange-traded fund (ETF), SPDR Gold Trust, said that its holdings increased to 907.82 metric tons on February 25, the highest level since August 2023.
In January, the Central Bank of Uzbekistan reported 8t net acquisitions, with 391t of gold holdings, or 82% of its reserves, in its possession. Sustained appetite at the People’s Bank of China (PBoC) added 5t in January. By the end of January, the PBoC’s gold holdings had increased to 2,285t, or 6% of total reserves. According to data from the People’s Bank of China, China continued to buy gold in February for the fourth consecutive month.
