Gold near historical highs: USA-China tensions and inflation fuel demand

The price of Gold (XAU/USD) continues to move around its highest levels ever, with the quotations remaining steadily near 3,220 dollars per ounce at the opening of the European markets on Friday. 

Leading this new rush to the precious metal are several factors, including the collapse of the US dollar, the escalation in trade tensions between the United States and China, and new expectations of interest rate cuts by the Federal Reserve.

Inflation slowing down, but tensions rising

The data published on Thursday by the Ufficio Statistico del Lavoro degli Stati Uniti (BLS) showed an unexpected drop in inflation in the month of March. The annual inflation rate (CPI) fell from 2.8% in February to 2.4%, below market expectations which were at 2.6%.

Even the core inflation, which excludes volatile sectors such as food and energy, decreased to 2.8% year-on-year, compared to 3.1% the previous month. Despite these disinflationary signals, the risks in the opposite direction have not disappeared. 

On the contrary, tension increased after President Donald Trump announced a dramatic escalation in the trade war with China. After the introduction of new tariffs at 125% against Beijing, in response to China’s decision to impose tariffs at 84% on some American products, the perception of global economic instability increased significantly.

The return of Gold as a safe haven asset

In a context full of uncertainty, Gold is regaining its traditional role as a safe asset. According to Nikos Tzabouras, senior market analyst, “Gold has regained its appeal as a safe haven and is once again heading towards new historical highs“. 

To further strengthen this dynamic, there is the weakening of the Dollar, largely caused by the increasingly widespread expectations in the markets of a more accommodative monetary policy. Traders are indeed pricing in between three and four interest rate cuts by the Fed within the year, a scenario that puts pressure on the Dollar but favors commodities like Gold, denominated in U.S. currency.

The technical picture: a run that could continue

From a technical perspective, the Gold price continues to show bull signals. The 14-day Relative Strength Index (RSI) is probing the overbought zone around 70, a signal that could suggest further room for a rise before a true exhaustion of buyers develops. The next significant hurdle is identified around the psychological level of 3,250 dollars.

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A stable breakthrough of this threshold could pave the way towards the next target at 3,300 dollars. On the opposite side, any corrections could find the first support at 3,200 dollars, followed by the 21-day simple moving average positioned at 3,061 dollars. In case of further declines, the threshold of 3,000 dollars would act as the last barrier to maintain the current bull trend.

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Gold: millennial refuge and pillar for central banks

Gold has accompanied the economic history of man as a store of value and medium of exchange, and the perception of the precious metal as a refuge in times of crisis remains more relevant than ever. In an increasingly interconnected world vulnerable to geopolitical turmoil, Gold represents a protection against inflation and currency devaluation. 

Central banks, particularly in emerging markets like China, India, and Turkey, are significantly increasing their gold reserves. According to the World Gold Council, central institutions purchased a total of 1,136 tons of gold in 2022, equivalent to about 70 billion dollars: the highest amount ever recorded in a single year. 

These purchases are not just symbolic. In times of economic uncertainty, Gold represents for many central banks a way to strengthen confidence in the monetary stability of their country, serving as a reserve independent of any specific currency or nation.

Determining factors and future scenarios

The performance of Gold is influenced by multiple variables, ranging from the geopolitical situation to monetary policy. In periods of instability or significant economic slowdown, investors tend to seek refuge in the yellow metal. Conversely, phases of growing stock market tend to decrease its value. Another central element is the inverse relationship of Gold with the Dollar and US Treasury Bonds. 

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The weakening of the greenback makes Gold more affordable for non-American buyers, helping to strengthen its prices. Since Gold does not offer yield, low interest rates make it more attractive compared to other assets. And, with the current economic scenario, it is precisely this combination of factors—among which the expectation of cuts by the Fed and the trade war between Washington and Beijing—that is driving the appetite for Gold to new highs.

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Conclusion: golden prospects in dark times

In a scenario dominated by geopolitical tensions, contrasting economic data, and evolving monetary policy, Gold is reaffirming itself as the safe haven asset par excellence.

Its ability to protect against uncertainty, combined with a growing demand from central banks and institutional investors, suggests that the rush for the yellow metal is far from over. The market’s eyes remain fixed on the threshold of 3,250 dollars: if convincingly surpassed, it could mark the beginning of a new historical phase for gold.