Gold price (XAU/USD) edges higher to near $4,670 during the early Asian session on Tuesday. The precious metal is set to hit a fresh record high as traders flock to safe-haven assets amid a persistent geopolitical and economic outlook.
US President Donald Trump said on Saturday that he would impose new tariffs on goods from eight European countries that reject his plan to acquire Greenland. The countries affected include Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and the United Kingdom (UK).
The announcement fueled concerns about a broader trade war and boosted traditional safe-haven assets such as Gold. Meanwhile, reports have suggested that the European Union (EU) is considering responding with a €93 billion package of tariffs on US imports.
“Gold has hit fresh record highs on its glittering run upwards,” said Susannah Streeter, chief investment strategist at Wealth Club. “The precious metal is holding even more allure as a safe haven as worries spread about the repercussions of the US aggressive trade and geopolitical policies.”
Most analysts expect the US Federal Reserve (Fed) to pause its monetary-easing campaign later this month due to stabilizing labor market conditions. Markets are currently priced in nearly a 5% chance of a Fed rate cut in the January policy meeting, according to the CME FedWatch tool. The view that the US central bank can keep interest rates higher for longer generally underpins the US Dollar (USD) and weighs on the non-interest-bearing assets like Gold.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
