Gold prices attracted new buyers following an indecisive close the previous day. During the Asian session on Thursday, they rocketed to a new weekly high. The yellow metal rose close to the $3,038-3,039 area on the back of escalating trade tensions and safe-haven investor panic. Gold remains the ultimate safe-haven asset. Its allure only becomes further pronounced when considering the inverse correlation with the US Dollar / US Treasuries, which at present are equally contending with prevailing turbulence. Finally, central banks around the world from emerging economies are increasing their gold reserves, which is keeping upward pressure on prices.
Gold’s Relationship with Economic Indicators
Gold has long been recognized for its inverse relationship with the US Dollar and US Treasuries, both of which are large global reserve assets. Specifically, this implies that when the dollar weakens or Treasury yields decline, gold prices tend to increase. Stronger USD and higher interest rates are two major factors that can weigh on gold prices. They increase the opportunity cost of holding non-yielding assets, such as gold. Today, amid growing fears of currency devaluation, central banks are increasing the diversification of their reserves by buying gold to maximize the perceived fortitude of their economies.
This upsurge in the demand for gold reserves is most sharply felt in emerging markets like China, India and Turkey. These are the countries that are rapidly increasing their gold reserves. In 2022 alone, central banks acquired an incredible 1,136 tonnes, valued at approximately $70 billion. In doing so, it highlights gold’s long-held position as a hedge against economic crisis and currency depreciation.
Trade Tensions and Safe-Haven Demand
The continuing trade conflict between the United States and China made an important contribution to increase demand for safe-haven assets such as gold. Investor sentiment has already been hit by confusion over anticipated reciprocal tariffs to be rolled out next week by the Trump administration. When these tensions rise, investors turn to gold to protect themselves from the dangers of uncertain markets.
This renewed demand for gold has been hardly surprising, as gold surged back into the greeks on Thursday. What’s pushing the metal’s price higher are the geopolitical factors. Even as other assets are being pummeled and are under extreme downward pressure, it has found its way to its weekly high. The $3,020-3,019 horizontal zone is now considered a support area, giving it a buffer from near-term upside threats.
Outlook for Gold Prices
Given recent market conditions, gold prices are clearly setting themselves up to break their previous all-time high set earlier in the year. The upside objective is just under the $3,057-3,058 area, last breached on March 20. Traders and investors alike would do well to keep a watchful eye on this psychological $3,000 level. This level would largely determine the short-term direction of the markets.
Another development lending a hand to the bullish case for gold is central banks’ persistent net purchases of gold reserves. Financial institutions are readily working and finding opportunities to diversify and stabilize their portfolios amidst global economic uncertainties. Such a project only serves to further cement gold’s reputation as the world’s trusted safe haven.