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Gold has emerged as the leading performer among “Trump trades” in recent weeks, outshining other major asset categories since the inauguration of the US President, as escalating concerns about a trade war and a possible downturn in global growth increase the demand for the safe-haven metal.
This year, bullion prices have consistently climbed each week, reaching a historic peak of $2,942.70 per troy ounce this week, as Trump initiates extensive tariffs. Gold has surged nearly 7 percent since before the January 20 inauguration, despite a slight decline on Friday.
In comparison, the S&P 500 on Wall Street has gained less than 2 percent, while other notable Trump trades, such as bets on a stronger dollar, rising Treasury yields, or bitcoin, have proven detrimental.
“When trade contracts, gold tends to soar,” remarked James Steel, a precious metals analyst at HSBC, referencing past instances during the Covid pandemic and the global financial crisis.
“The more tariffs implemented, the more they disrupt global trade, which will ultimately benefit gold,” he further stated.
The acceleration in gold’s rally has been fueled by a significant increase in inventory in New York, which has risen by 116 percent since the election, as traders and banks swiftly transfer gold from London, the largest physical trading center, to the US. This has resulted in lengthy queues for gold withdrawals from the Bank of England’s vaults.
Trump’s recent round of tariffs includes a strategy to impose “reciprocal” tariffs on US trading partners, affecting both allies and adversaries, along with additional 10 percent tariffs on goods imported from China.
Experts believe that a potential global trade war will hinder economic growth and ignite inflation — conditions that typically boost bullion prices.
“Gold is a strategic trade linked to Trump’s tariffs,” added Nicky Shiels, an analyst at MKS Pamp, a gold refining company. “There is a positive correlation between tariff announcements and rising gold prices,” she noted.
As gold has continued its long-term ascent, other Trump-related trades have faltered. The dollar has decreased by 2.4 percent this year against a basket of currencies and has significantly dropped since the inauguration. Additionally, ten-year US Treasury yields, which reached just above 4.8 percent last month, have retreated to 4.48 percent as debt prices have rebounded.
Traders and investors suggest that a less aggressive stance on tariffs than previously anticipated has strengthened the currencies of major exporting countries or regions, such as the euro. Meanwhile, the market’s renewed focus on the risks to growth posed by a trade war has prompted investors to flock to government bonds.
“Gold serves as a hedge against geopolitical uncertainties, inflation, and dollar fluctuations,” stated Trevor Greetham, head of multi-asset investment at Royal London Asset Management.
“The first two factors have driven gold’s strong performance over the past year, with significant purchases by central banks and retail investors pushing prices higher.”
The recent depreciation of the dollar has placed additional upward pressure on gold, as it is priced in dollars, making it less expensive to purchase in other currencies.
With gold reaching multiple record highs, some financial institutions have been prompted to revise their price predictions set in December. Last week, both UBS and Citigroup raised their target prices to $3,000 per troy ounce.
This year, robust purchases from central banks, seeking to diversify their reserves away from the dollar, are expected to be a key driver of gold demand.
According to the World Gold Council, central banks acquired more than 1,000 tonnes of gold for the third consecutive year.
Mark Bristow, CEO of Barrick Gold, commented that the ongoing “chaos around the globe” has increased investor interest in gold as a secure asset.
“The market is clearly indicating that there is only one reserve currency in the world, and that is the one that politicians cannot print — and that is gold,” he concluded.
