Gold prices declined on Tuesday, but managed to stay in proximity to recent highs.
This was due to sustained haven demand, fueled by apprehensions surrounding the potential escalation of US trade tariffs and the deteriorating relationship between Washington and Beijing.
The possibility of higher tariffs and increased trade tensions between the two largest economies globally has spurred investors towards safe-haven assets like gold, which are traditionally seen as a hedge against economic and political uncertainty.
Haresh Menghani, editor at FXstreet, said in a report:
Slightly overbought conditions on the daily chart prompt traders to lighten their bullish bets around the precious metal.
At the time of writing, the April gold contract on COMEX was at $2,952 per ounce, down 0.4% from the previous close.
Gold price upward trajectory propelled by Trump tariffs
Gold prices experienced a surge in overnight trading, nearing a record high due to sustained safe-haven demand.
This upward trajectory was further propelled by US President Donald Trump’s announcement that he intends to proceed with imposing 25% tariffs on Canada and Mexico by the following week.
The persistent demand for safe-haven assets, like gold, amid global economic uncertainties and geopolitical tensions has been a key driver of the metal’s price increase.
President Trump’s unwavering stance on imposing tariffs on Canada and Mexico has introduced additional uncertainty into the global trade landscape.
This has further fueled the demand for safe-haven assets, as investors anticipate potential disruptions to supply chains and economic growth.
The tariffs could escalate trade tensions between the United States and its North American neighbors, potentially leading to retaliatory measures and a trade war.
Additionally, Beijing could retaliate further against Trump’s aggressive stance towards China.
In February, Trump imposed a 10% tariff on all Chinese imports, and Beijing responded with a series of trade tariffs and export controls.
Zain Vawda, market analyst at OANDA, said in a report:
Risk aversion persisted in the markets…as the end of February draws to a close.
“The risk aversion tone is a result of the ongoing uncertainty of US trade and tariff policy,” he added.
Will gold prices rise further?
The 2025 gold price rally has been fueled by several factors, one of which is the weakening of the US dollar.
A weaker dollar makes gold, which is priced in dollars, relatively cheaper for holders of other currencies, increasing demand and driving up the price.
This inverse relationship between the dollar and gold is a well-established trend in financial markets, often observed during periods of economic uncertainty or when investors seek safe-haven assets.
“Is the gold rally exhausted or will a touch of $3000/oz occur this week? That is the pertinent question this week, as $3000/oz remains a possibility,” Vawda said.
Gold prices experienced a remarkable surge, appreciating for eight consecutive weeks by last Friday.
This impressive performance marked the longest winning streak for gold since 2020 when it achieved nine straight weeks of gains.
The sustained upward momentum underscored gold’s resilience and appeal as a safe-haven asset amid prevailing market uncertainties.
“While this could indicate the rally is losing steam, gold is so close to the $3,000 mark that it’s likely to at least touch that level briefly before pulling back,” Vawda added.
According to Vawda, the bulls are currently in control, and if the market breaks through $2,956 per ounce, it could test $2,975 on its way to $3,000.
“I still think the 3000 handle will be hit, but the precious metal may struggle to find acceptance above this level at the first time of asking.”
Can gold outperform stocks?
Market analysts are increasingly predicting that gold prices will outpace stock market gains in 2025.
This projection is fueled by a confluence of factors that are expected to keep the demand for gold high.
Economic uncertainties, geopolitical tensions, and the potential for inflationary pressures are all contributing to gold’s appeal as a safe-haven asset.
As a result, the price of gold is anticipated to rise significantly, potentially surpassing the returns offered by traditional equity investments in the coming year.
“Excluding the uncertainties around tariffs, central banks are another piece of the puzzle, with the Fed outlook in particular seeming murky,” Vawda said.
Concerns around the stock market being overvalued and with retailers concerned about performance moving forward, this is becoming a real possibility.
“The recent weaker US macro data reaffirmed bets for two quarter-percentage-points rate reduction by the Federal Reserve this year and might contribute to limiting losses for the non-yielding bullion,” Menghani noted.
US central bank needs more clarity before it can resume cutting interest rates, Chicago Fed President Austan Goolsbee cautioned on Monday, adding that a wait-and-see approach is warranted for now.
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