Gold prices jumped for a fourth consecutive day on Wednesday, nearing a two-week high. In fact, during the Asian trading session on Thursday, they pushed up into the $3,344 to $3,345 interval. Gold and silver benefits The combination of these factors has increased the attractiveness of precious metals. So much so that many investors now regard them as a safe haven.
Renewed tensions in US-China trade relations are fuelling this rise. Geopolitical risks and persistent questions around US fiscal policy are big drivers too. These three factors combined have played a significant role in influencing global risk sentiment and have played to gold’s lustre as a safe haven investment.
Moreover, Moody’s recently took a historic step of downgrading the US sovereign credit rating. This downgrade has reignited worries over the US deficit which is ballooning rapidly. There’s a lot of caution in the market at the moment. It’s nothing compared to President Donald Trump’s promise of the “One Big, Beautiful Bill,” which would increase the national debt by $3 trillion to $5 trillion.
Geopolitical Tensions and Trade Relations
The recent flare-up of US-China trade tensions has added another layer of complexity to this already volatile global economic environment. China’s Commerce Ministry responded to the US’s new measures targeting advanced chips, calling them “the best practice of unilateral bullying and protectionism.” This rhetoric has raised the perceived risk of recession and pushed investors toward gold as a safe haven asset, further driving up demand.
Trump’s claims about Russian President Vladimir Putin’s plans to invade Ukraine have added even more bullish floor for gold prices. This expressed to European leaders that Putin thinks he’s winning the war, adding to many other geopolitical uncertainties. Trailing since the gold bull’s birth, geopolitical risks have had a dominant influence shaping (or curbing) gold’s performance. Thus, when the waters get rocky, many investors rush to safety of the metal.
These dynamics have created an environment for gold to flourish, as seen by its recent price action. The one-two punch of international trade disputes and geopolitical instability is keeping market sentiment tilted towards gold-bullishness.
US Fiscal Concerns Impacting Currency and Investment
The worsening outlook for US fiscal health is just as important in understanding the recent price action in gold. Concern over growing deficits has trumpeted since the 2016 election. President Trump’s monumental reforms, in the form of tax cuts, are estimated to blow a huge hole in government revenues. The market is having an even better time betting on future interest rate cuts from the Federal Reserve. This is a trend that’s draining the strength out of the US dollar.
Despite abundant stockpiles of gold, the dollar’s value has tanked, which has in turn directly inflated gold prices. This increase occurs not only due to gold’s typical inverse correlation with the USD. This has rapidly turned into an overreaction by investors to some prevalent fiscal concerns. They are more willing than ever to purchase gold as a protection against currency devaluation and inflation.
Gold’s price stabilization continues above major technical levels, such as the 61.8% Fibonacci retracement from its recent highs. That relative stability despite recent market volatility suggests there is still a bullish underlying sentiment among traders. Market experts note that a clear break below the $3,285 support level would open the door to new buying. Customers would recognize potential for a support range to develop around $3,250.
Central Banks Boosting Gold Reserves
Whether they stop to consider it or not, investor behavior is swayed by the current state of the market. Meanwhile, central banks in other developing economies—particularly China, India, and Turkey—are racing to increase their gold reserves. According to the World Gold Council, central banks collectively added an unprecedented 1,136 tonnes of gold to their reserves in 2022. This gold is worth an estimated $70 billion.
For one thing, central banks have been rapidly diversifying their reserves. They are increasingly opting out of traditional fiat currencies as an effect of continued economic uncertainty. History shows that as these institutions strengthen their gold holdings, they put upward pressure on gold prices with increased demand.
Technical indicators are now at the top of investors’ watchlists as well. If it can convincingly break below important support levels at $3,316 or the 61.8% Fibonacci retracement, it may trigger strong technical selling pressure. If so, that would help drive prices further down towards the retest of the $3,200 low.