Will the price of gold keep going up?
The US-China trade war rumbles on. Investors are digging their trenches. The dollar is losing its force while the price of gold is going ballistic.
A week ago, UBS made what some saw as a bold prediction that gold would reach $3,500 per ounce by December 2025. That milestone has already been hit.
Scarred stockholders are piling into the precious metal, pushing up the value of the safe haven asset to over 30 per cent higher than a year ago. London-based Standard Chartered said nearly $20bn has been spent on gold-backed exchange traded funds during the first three months of the year alone.
The continued rise suggests investors – and central banks – don’t yet feel sufficiently protected from stock markets bombing. The S&P 500 is heading for its worst month since September 2022 while the Dow Jones Industrial Average could see its worst April in nearly 100 years.
Treasuries and the US dollar are typically seen as safe havens in times of global crisis. But the reputation of the US itself is waning under President Donald Trump’s erratic trade policy, epitomised by his explosive posts on Truth Social. The currency has hit a three-year low and bonds have been sold off at speed, prompting the largest weekly increase in ten-year yields since 2001.
Trump vs Powell
The US economy could still face a further beating.
The independence of the Federal Reserve – a lynchpin of America’s financial stability for decades – has been called into question. Should Trump follow through with his threat to sack Fed chair Jerome Powell for failing to succumb to White House pressure on interest rate cuts, bondholders could decide the US is unworthy of its prestige and send stocks sinking further still.
“Removing the Fed chair before the end of his term in May 2026 could call into question the ability of the central bank to set interest rates without political interference,” UBS Global Wealth Management’s chief investment officer Mark Haefele said.
“Markets are therefore likely to be sensitive to any indication that the White House will press ahead with efforts to remove Powell, or to replace him with a more ‘malleable’ candidate after his term expires.”
Trump’s determination to commandeer US economic institutions comes against a weak economic outlook. A fierce trade war with China involving eye-watering tariffs of over 120 per cent is expected to send US inflation surging and growth stumbling in the months ahead. The world economy, meanwhile, is on a “recessionary path”, according to the United Nations.
In these circumstances, gold is one of the last remaining safe havens and it will likely be in a league of its own for some time yet.
Gold to hit $5,000 or come crumbling down?
Investors who have sought refuge in gold might begin to wonder how long the precious metal can help shield them from losses elsewhere.
Many analysts believe the price of gold will hit $4,000 but financial advisory firm DeVere Group’s chief executive Nigel Green has predicted that prices could surge to $5,000 if neither the US or China back down.
“The world is watching a strategic decoupling of the world’s two largest economies in real time,” Green said.
“What began as a tariff spat is evolving into a geopolitical and economic confrontation—with implications that stretch far beyond trade. In this environment, gold is becoming the ultimate financial insurance.”
“Should Washington and Beijing continue to double down instead of de-escalate, we’ll see continuing significant inflows into gold.”
Before Trump’s ‘Liberation Day’ earlier this month, gold was already gathering momentum.
Central banks were stocking up on the precious metal as appetites for holding loose cash has waned since the freezing of Russia’ central bank assets by various Western nations and higher government borrowing by the likes of Germany. The World Gold Council said in late March that central banks bought more than 1,000 tonnes of gold for the third year in a row, accounting for 20 per cent of total gold demand.
The sparkly allure of gold could provide shelter for as long as the current stalemate between the US and China drags on.
But Jon Mills, a Morningstar analyst, has warned that its price could be knocked back down to around $2,000 an ounce once investors seek opportunities elsewhere, as they did after the price of gold saw an initial price spike during the pandemic.
He also suggested miners will adjust to high prices in the market by producing more.
“Like with any other commodity, if existing producers are making excess returns, high gold prices will eventually incentivise new production to come online, whether it’s mined or recycled gold,” he said.
“This inevitably sees returns (and prices) fall closer to the cost of capital.”
Mills’ warnings defy what other analysts are writing. Gold is providing a much-needed reprieve for embattled investors and most believe prices will stay that way until other counter-trends emerge. But taking cover is no way to survive a drawn-out war.