Gold rose above $3,130 per ounce on Wednesday, climbing back toward record levels reached in the previous session, as risk aversion took hold in global markets. Investors sought the safety of gold as they braced for additional US tariffs, which could further escalate the global trade war.
Gold rises ahead of fresh US tariffs
The White House did not disclose specific details about the tariffs’ scope but confirmed that they would take effect immediately after being unveiled. President Trump also hinted that the duties would target many countries, raising concerns about the broad economic fallout. This uncertainty over global trade dynamics drove a rush into safe-haven assets, with gold emerging as a key beneficiary.
In addition to trade tensions, gold was further supported by expectations of potential interest rate cuts by the Federal Reserve. As economic data from the US showed signs of slowing, particularly with weaker jobs data and a disappointing manufacturing report, market expectations for rate cuts grew stronger. Lower interest rates tend to make gold more attractive, as they reduce the opportunity cost of holding non-yielding assets like gold. This has driven up demand for the precious metal, both as a hedge against economic uncertainty and as an inflationary safeguard.
Gold-backed ETFs see significant inflows
Gold-backed ETFs also saw significant inflows, reflecting strong demand for gold as a store of value. The Chinese gold ETF added 233,000 ounces of notional bullion over the past week, highlighting the growing interest in gold investment in key global markets. Central banks, particularly in emerging markets, have been net buyers of gold, seeking to diversify their reserves and protect against global economic risks. This trend of increasing central bank demand has added to the upward momentum in gold prices.
Meanwhile, recent US economic releases painted a picture of a cooling economy, further fueling demand for gold as a hedge. Weak jobs data and a poor manufacturing report underscored concerns about the health of the US economy, which has been a key driver of global growth. Investors are now focused on Friday's nonfarm payroll report for more insights into the Fed's potential next moves, as a weaker labor market could pave the way for further rate cuts, providing additional support for gold prices.
Gold remains a safe-haven asset
As tensions in global trade and economic data continue to evolve, gold remains a key asset for investors looking to protect themselves from volatility and potential financial instability. With central banks remaining accommodative and trade risks mounting, gold's appeal as a safe-haven investment is likely to persist, potentially driving it toward new record highs.
