Safe-haven precious metal resumes its price ascent as US investments come under scrutiny

Gold’s price has set a new record in Asia-Pacific trade, ringing alarm bells about the global economy and the financial system buffeted by the Trump tariff regime.

Gold’s price has rallied 17 per cent rise in the past two weeks.

Gold’s price is ringing urgent alarm bells about the global economy and financial system as the trade war rages on despite a 90-day pause on US reciprocal tariffs.

After soaring almost 3 per cent on Monday, the price of spot gold rose as much as 2.3 per cent to a record high of $US3500.10 in Tuesday’s Asia-Pacific trading, which was up an incredible 33 per cent in the year to date.

The bigger-than-expected reciprocal tariffs announced by US President Donald Trump two weeks ago caused such sharp falls in stocks that even gold was briefly sold off in a scramble for liquidity.

However, the gold price rally is back on track and has had a massive 17 per cent rise in the past two weeks.

It’s no coincidence that the gold price accelerated after the simultaneous sell-off in US stocks, bonds and the US dollar that occurred after the trade war was ramped up.

A sell-off in risk assets like stocks driving a flight to safe havens like gold is nothing new. But with investors now demanding higher risk premiums for owning the US dollar and Treasury bonds, these traditional safe havens may not be as “safe” as they once were, driving investors into gold.

Gold could be in for a particularly strong week after Mr Trump’s latest verbal attack on Federal Reserve chair Jerome Powell rekindled the “sell America” theme.

Investors dumped US stocks, bonds and the dollar as Mr Trump again called for Mr Powell to cut interest rates – while National Economic Council director Kevin Hassett on Friday said Mr Trump was considering whether or not to remove Mr Powell before his term expires.

As gold continued its climb, the relative calm that emerged in Tuesday’s Asia-Pacific trading may belie ongoing anxiety about the trade war and the political pressure on Mr Powell that could worsen the recent sell-off in US assets.

Tariff-related concerns about the global economy are expected to combine with strong central bank and other institutional demand – including China insurance company buying – to drive gold investment demand to more than 110 per cent of mine supply during the June quarter, according to Citi.

Donald Trump’s trade feud with China’s President, Xi Jinping has sent world markets into a spin.

The US bank said this would be its highest level since the global financial crisis and second highest level in more than 25 years, and would likely lift prices to $US3500 per ounce over the next three months. That now looks conservative as gold hit $US3500 on Tuesday.

“We think gold is likely to be in an extremely rare physical deficit at present, meaning prices need to rise in order to get relatively price-inelastic stockholders to sell to clear the market,” Citi analyst Kenny Hu said.

He said the gold bull market was likely to continue, and that tariff and geopolitical uncertainties were continuing to support emerging markets’ official sector gold demand. With global – and particularly US economic growth concerns, both tariff and economic cycle related – it would increase household fear and support investment demand for gold.

Still, investors would be alert to signs that the “Trump put” remains active after Mr Trump paused the reciprocal tariffs for countries other than China two weeks ago.

However, the sell-off in US stocks and bonds, and the dollar on Monday wasn’t of the scale that occurred two weeks ago.

Mr Trump could well be sensitive to any moves in the “wrong” direction from here.

The US S&P 500 is still down 16 per cent from its high and underperforming the MSCI All Country World index (after stripping out US stocks) by 7.7 per cent, which is its worst underperformance since April 1993.

Meanwhile, the DJIA is having its worst April since 1932 when the US was in the grip of the Great Depression. The S&P 500’s performance since Inauguration Day is now the worst for any president up to this point according to data going back to 1928, Bespoke Investment Group said.

The 30-year bond yield is close to the 5 per cent level it hit two weeks ago just before Mr Trump announced the 90-day pause on reciprocal tariffs, the US dollar is still hitting three-year lows and the VIX remains elevated near 34 per cent versus its long-term average of about 19.5 per cent.

US stock market falls have, of course, been compounded for non-US investors as the US dollar is having its worst month in 16 years. Notably, the euro/$US is up 6.2 per cent month-to-date, on track for its largest monthly gain since May 2009.

“For European and many other international investors who began the year overweight US stock markets without hedging their FX exposures – anticipating the usual correlation that if stocks fall, the US dollar will rise, April has been particularly painful,” IG market analyst Tony Sycamore said.

Using the S&P 500 as a guide, these investors are suffering an 8 per cent loss on their US stock portfolio, compounded by an approximate 6.2 per cent loss if their US stock portfolio wasn’t currency hedged.

Former Boston Fed president Eric Rosengren succinctly captured the situation, posting on X that: “Unless the goal is to make the US trade like a third-world country, threatening the Federal Reserve’s independence only makes the US less attractive to foreign investors.”

Originally published as Safe-haven precious metal resumes its price ascent as US investments come under scrutiny