In the early hours of Monday’s Asian trading, the price of gold found itself slipping to around $2,880 as traders looked to secure profits. The pause in imposing new tariffs by the Trump administration seemed to have calmed some market nerves, which in turn exerted downward pressure on the value of gold.
President Trump’s latest move to consider “reciprocal tariffs” sparked concerns about possible trade wars, yet the delay in these tariff plans has helped contain the slide in gold prices. Last Thursday, Trump issued a memorandum detailing proposed tariffs but chose to postpone their enactment to engage in discussions with various countries. This development dampened the demand for gold, traditionally a go-to asset in times of uncertainty.
As investors continue to assess how the unfolding tariff story evolves, any indication of rising trade tensions could promote gold’s safe-haven appeal. Increased trade uncertainty would likely encourage investments in gold.
Meanwhile, disappointing economic data from the US has taken some wind out of the dollar’s sails, which might lend support to commodities priced in dollars, such as gold. According to the US Census Bureau, January’s retail sales dropped by 0.9%, marking a sharp contrast to the revised 0.7% gain seen in December and falling below expectations of a 0.1% dip.
Understanding gold’s role is crucial in a global financial context. Beyond its glitter and value in jewelry, gold is often seen as a reliable safety net, especially during economic turmoil. It’s widely regarded as a safeguard against inflation and currency devaluation because it operates independently of specific issuers or governments.
Central banks around the world are significant gold holders. By bolstering their gold reserves, they aim to fortify their economies and currencies, especially in turbulent times. This was evident in 2022 when central banks accumulated 1,136 tonnes of gold, valued at about $70 billion, marking a historic peak. Emerging markets like China, India, and Turkey have been notably increasing their reserves.
Gold’s price movements are intricately tied to its inverse relationship with the US dollar and US Treasury bonds, both of which are cornerstone reserve and safe-haven assets. When the dollar weakens, gold typically performs well as investors and banks look to diversify their portfolios in uncertain times. Similarly, when the stock market rallies, gold tends to suffer, but if there’s a downturn in riskier markets, gold often benefits.
Several factors can influence gold prices, ranging from geopolitical tensions to potential economic downturns, which could elevate gold’s value due to its safe-haven characterization. As a non-yielding asset, gold prices often move inversely to interest rate trends, thriving with lower rates and suffering with higher ones. The performance of the US dollar, given that gold is priced in dollars (XAU/USD), remains a significant determinant; a strong dollar typically restrains gold, whereas a weaker dollar tends to boost it.
