Gold prices have surged to record highs recently, with London’s spot price surpassing $3,050 per ounce on Thursday, reflecting growing market concerns about the US dollar’s stability. This dramatic rise marks a shift in the traditional analysis of gold’s value, which has historically moved inversely to the US dollar and US bond yields.
Several factors are driving these price changes. Gold, considered both a commodity and a financial asset, is seen as a hedge against inflation and risk, offering protection in times of economic uncertainty. Its value is influenced by a variety of factors, including exchange rates, credit risks, and shifts in foreign reserves. Retail consumption, industrial demand, mining activities, and recovery rates also play a significant role in determining its commodity value, while monetary policy from the US Federal Reserve impacts its financial attributes.
The Federal Reserve’s decision to hold interest rates steady at a target range of 4.25 to 4.5 percent during its March meeting has contributed to the weakening of the US dollar. The Fed‘s cautious stance, signaling a potential slowdown in rate hikes starting in April, has led to a modest rise in gold prices. This aligns with expectations that the Federal Reserve may continue to cut rates throughout the year.
Adding to the pressure on the US dollar is the tariff strategy implemented during the Donald Trump administration. These tariffs, which may undermine US economic growth, are contributing to a decline in the global standing of the dollar. Continued tariff policies could further weaken the US economy, erode confidence in the dollar, and diminish trust in US reserves.
In response to these fiscal challenges and global uncertainties, central banks worldwide are increasingly diversifying their reserves. In January, global central banks purchased a total of 18 tons of gold, with emerging economies leading the charge. While developed countries like the US, Germany, France, and Italy have long held significant gold reserves, it is now the emerging markets that are driving net gold purchases. This trend has piqued investor interest and further supported gold prices.
Gold’s rising demand has been propelled by central bank acquisitions, with its role as a safe haven asset becoming more pronounced. In 2024, total global gold demand reached 4,974.5 tons, fueled by central bank purchases, global investments, jewelry demand, and technological applications. Notably, retail purchases, particularly jewelry and gold bars, have contributed significantly to the demand, with central bank acquisitions continuing to influence market prices.
The “America First” policies, which have sparked uncertainty in global financial markets, are expected to further fuel the rise in gold prices. As these policies continue, the global economy and financial sector are likely to face increasing volatility, further solidifying gold’s position as a key asset in times of crisis.
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