Gold is set to close the week in the red for the first time in nine weeks, with prices sinking near $2,850 per ounce on Friday, down 2.5% for the week. This marks a break from eight consecutive weeks of gains, made possible by safe-haven demand due to President Donald Trump’s tariff agenda on top of relentless buying from central banks, especially from China. The decline is in some part due to the stronger U.S. dollar, which rose 0.7% this week while treasury yields declined, suggesting there may be gold liquidation to accumulate dollars. Trump’s confirmation of 25% tariffs on Mexican, Canadian, and European Union goods, alongside an additional 10% levy on Chinese imports effective March 4, has heightened fears of a global trade war and retaliatory measures from those countries, pressuring gold that has no large enough fundamental offset compared to access into the U.S. economy that is through the dollar.
A notable shift in the gold market is the transfer of over 600 tonnes from London to New York City vaults since December, according to the World Gold Council. This transfer of physical assets shows investor efforts to shield assets from the impact of approaching tariffs, a signal of impending doom to floating assets. Compounding this, higher borrowing costs are a clear sign of panic, paying a premium at all costs to secure a safe. As a non-yielding asset, gold struggles when interest rates climb, but that does not stop investors from buying in to hedge their position. The Federal Reserve’s decision to hold rates steady at 4.25%-4.50% has kept gold's appeal limited, and the upcoming PCE price index will determine whether it is necessary for the Fed to cut earlier than later, which will boost gold demand.
China remains a critical player in the gold market, with its central bank steadily purchasing gold regardless of elevated prices, stacking reserves nearing 7% of its total foreign reserves. Chinese retail investors are also snapping up gold as a hedge against economic volatility, reinforced by limited investment options, providing a price floor even as demand softens elsewhere. According to Jing Daily, the younger generation had also taken the opportunity to join the craze for gold by becoming a do-it-yourself (DIY) goldsmith, earning a decent amount. Additional factors influencing gold prices include projected inflation and economic slowdown—scenarios historically favourable to gold. Analysts like Nitesh Shah from WisdomTree note that a recession paired with inflation could propel gold higher, while the interplay of US dollar strength, tariffs, and upcoming inflation data continues to shape its near-term trajectory.
Source: Kitco, WGC, Jing Daily
Photos: Unsplash
