Last month, gold prices shot up over $3,050 an ounce. With an increase in economic uncertainty and the advent of U.S. tariffs, investors are heading toward this precious metal more than ever. In the past, gold has proven to be a sound form of money and a successful means of exchange. This is why it is a coveted asset in times of market strife. In truth, the Federal Reserve is already pointing the way—indicating their next moves will involve interest rate cuts. Consequently, investors are flocking towards gold as a go-to safe haven.
Recent data from the CME FedWatch tool indicates a notable change. The probability of a Fed interest rate cut at May’s meeting has shot up to 53.5%. This new era of monetary policy is fundamentally shifting market dynamics. Needless to say, it is having a notably weak effect on gold prices, which are traditionally denominated in U.S. dollar terms (XAU/USD). The correlation between gold price and dollar strength is often shown on their own. This reconfiguration pushes investors towards greater diversification within their portfolios to meet changing economic headwinds.
The White House has addressed speculation regarding President Trump’s tariff strategies, dismissing any claims of a 90-day pause in tariffs as “fake news.” This short-sighted denial has injected even more uncertainty into the already turbulent economic climate, helping to boost gold prices. Against this backdrop, inflows into four major onshore gold ETFs hit a record high. Specifically, last week, the Huaan Yifu Gold ETF and its counterparts brought in an enormous 7.6 billion yuan, or about $1 billion.
The Impact of Tariffs on Gold Demand
Now that tariffs have taken effect, investors are reacting to the news and putting more of their money into gold. The recent geopolitical climate has inspired millions to turn to gold as the perfect solution to hedge against economic turmoil. “Gold’s rebound reflects growing investor anxiety over tariff threats and the potential reshaping of global trade norms,” stated Christopher Wong, a foreign currency strategist at Oversea-Chinese Banking Corp.
The tariff developments have heightened fears of rising global trade tensions and prompted investors to flock to gold as a safe haven. Perhaps that’s why the world’s central banks—the very entities that own more gold reserves than any other institutions—are still buying gold at record rates. In 2022, they helped drive a record-breaking acquisition overall of 1,136 tonnes of gold. This accounted for a record high annual gold purchase of nearly $70 billion.
All the ups and downs in gold prices recent years can largely be blamed on a constantly fluctuating strength of the U.S. dollar. In general, a stronger dollar is negative for gold as it raises the dollar-price of gold to foreign investors. Historically, when the dollar has depreciated, gold prices have increased substantially. This trend allows both private portfolio managers and central banks to better diversify their investments, especially in times of stress.
Technical Indicators for Gold Prices
The implications of gold trading from a technical standpoint show substantial support and resistance levels that will play a role in upcoming price action. The S2 support level is at $2,945, as of now. This area now serves as the final line of defense ahead of price reaching the 55-day Simple Moving Average (SMA) at $2,935. Market analysts are watching these levels like a hawk, because they represent the first signs of price volatility.
The important breakout point is the $3,004 high of March 14th. This is just about spot on with $3,000 which we believe to be an important psychological threshold. This intersection is vital for traders as it will determine market sentiment and price direction in the future.
Digging in a little deeper on the dynamics of the market, you can find that lower interest rates usually support gold. Unlike the above assets, gold does not earn interest. Any future cuts in the Fed’s target for interest rates would add to gold’s allure. For investors, that would make it a much more appealing investment opportunity.
Central Banks and Gold’s Role in Economic Strategies
Something profound is taking place as central banks around the globe realize gold, not paper, is the ultimate strategic reserve asset. With ongoing economic uncertainties and fluctuating currencies, central banks have embraced gold as a means of stabilizing their financial systems. The World Gold Council’s Q3 data further underscores that central banks’ appetite for gold is still going strong, even in the face of global economic headwinds.
As noted by financial analysts, bullion is a great hedge instrumental against a greater globally disorderly economic climate. “Gold remains a key asset for diversifying portfolios in times of economic distress,” Wong noted. This view makes gold even more important as a safe-haven asset with increasing market volatility.
The inverse correlation between gold, the U.S. dollar, and U.S. Treasuries highlights its role as the second most important reserve asset. As the economic climate develops and risks continue to hang in the balance, we expect investors to look positively on gold.