(Kitco News) - Chaos in global financial markets has driven gold prices to fresh all-time highs, and the precious metal could have the momentum to move higher still as the list of safe-haven assets has grown extremely short.
Not only is gold trading above $3,200 an ounce, but with a 6% gain from last Friday, the precious metal is seeing its best weekly performance since March 2020. Spot gold last traded at $3,224.20 an ounce.
Although gold’s rally is starting to look a little parabolic with the latest move, analysts have said that it is difficult to know exactly where fair value is as the U.S. dollar drops and bond yields rise.
“Usually, gold would need to consolidate at new highs before fresh buyers emerge to take advantage of lower prices and a reduction in overbought conditions,’” said David Morrison, Senior Market Analyst at Trade Nation. “But investors were desperate to find a safe haven amidst the market carnage, particularly after the flight into US Treasuries, the traditional ‘flight to quality’ trade, went so spectacularly wrong. Gold continues to attract buyers who continue to look for safe havens amid the weaker dollar and the relentless stream of competing tariff headlines. But it is now up over 8% since Wednesday, so ‘caveat emptor.”
Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, said he also expects gold prices will continue to rally.
“It’s overbought, no question—frothy even—but chaos like this flips the script,” he said. “When panic sets in, gold becomes the only port in the storm, and that fear can easily push it higher before reality kicks in.”
The U.S. dollar index dropped to 99 points overnight, a three-year low. While the DXY is looking to end the week at 100 points, some analysts have said that the damage is done.
Jonas Goltermann, Deputy Chief Markets Economist at Capital Economics, said this is a sea change in the U.S. dollar as the world economy continues to react to President Donald Trump’s global tariffs.
“It is too soon to say what the longer-term effects of the past ten days’ turmoil will be, and there is still time for damage limitation by policymakers,” he said in a note. “But, in our view, it is no longer hyperbole to say that the dollar’s reserve status and broader dominant role is at least somewhat in question, even if the inertia and network effects that have kept the dollar on top for decades are not going away any time soon, and our base case is that it will recover to some degree.”
It’s not only a weak U.S. dollar that is supporting gold, but a surprising rise in U.S. bond yields. The yield on U.S. 10-year notes is ending the week at 4.5%; the market has seen its biggest push higher on record.
Traditionally, higher bond yields are negative for gold as they raise the precious metal's opportunity costs as a non-yielding asset. However, analysts note that U.S. bonds are selling off as the world starts to question America’s role as a reliable trading partner.
A weak U.S. dollar and higher bond yields mean investors are looking for other safe-haven assets such as gold, and to some extent, silver.
Jerry Prior, COO of Mount Lucas Management and Senior Portfolio Manager of the KraneShares Mount Lucas Managed Futures Index Strategy ETF (NYSE: KMLM), said that with so much uncertainty in the marketplace, it is not surprising that gold is trading at fresh record highs and looks like it could go higher.
“It’s perfectly valued for what we know today. Talk to me in an hour and I might have a different answer, but that also shows just how much uncertainty there is in these markets,” he said. “There is no playbook we can use to navigate this unprecedented uncertainty.”
Jesse Colombo, independent precious metals analyst and author of The Bubble Bubble Report on Substack, said that gold still has plenty of momentum as it’s the U.S. dollar that has been overvalued for years.
He added that the broader commodity index is set for a major rally as investors revalue the U.S. dollar and bond yields.
“The rise in bond yields (in this particular unusual scenario) is super bullish for gold because it means that Treasuries are sinking as they lose their safe-haven appeal,” Colombo said. “That means that the Fed will soon need to end QT and launch QE to prop up the Treasury market, which will be rocket fuel for precious metals and commodities in general.”
Earlier this week, President Donald Trump paused his broad reciprocal tariffs; however, analysts and economists note that the damage to America’s reputation has already been done as the administration has maintained a global 10% tariff on imported goods and continues to fight a tit-for-tat trade war with China.
Sameer Samana, head of Global Equities and Real Assets at Wells Fargo, said that while a recession is not his base case scenario, risks are rising as tariffs are maintained.
“At some point, someone is still going to have to pay the extra 10% costs for goods. Prices will go up, and that means consumers will buy less, and that will be a drag on economic activity,” he said.
Market analysts at TD Securities said that it is the threat of further economic weakness in the U.S. that is hurting the U.S. dollar and bond yields. Slower growth comes as the U.S. government continues to see a significant rise in debt.
“One reason for the loss of haven appeal is linked to the loss of US exceptionalism. In fact, the US's growth advantage to the rest of the world has finally disappeared after 2 years. US equities have also severely underperformed global equities, and the USD has mirrored that,” the analysts said. “We expect USD to weaken in 2025 as the gap between the US and the rest of the world shrinks.”
In this environment, analysts have said that there is no telling just how high gold prices can go.
“Given how the United States recently clarified that the new tariff rate on most Chinese imports is in fact 145%, trade tensions are likely to intensify between the world’s two largest economies. The negative knock-on effect could hit the global economy, forcing central banks to cut rates to stimulate growth,” said Lukman Otunuga, Manager of Market Analysis at FXMT. “So, a weaker dollar, global growth fears, and bets of lower US rates could boost gold prices higher. Looking at the technical picture, prices are firmly bullish on the daily charts with gold gaining over 6% this week. This has pushed year-to-date gains to 23% with bulls firmly in the driving seat. A solid daily and weekly close above $3200 may open a path toward $3250 and possibly $3300.”
Alex Kuptsikevich, Chief Market Analyst at FxPro, sees even more potential for gold.
“Developments this week proved that gold is living a life of its own,” he said. “Gold's closing the week at all-time highs triggers a pattern of expanding gains, with the potential to strengthen above $3500. Another encouraging signal for gold is the multi-year highs of the gold miners' ETFs, further confirming the strength of the current rally.”
Analysts note that markets will continue to pay attention to any announcements from the White House and all potential global trade war and tariff headlines, with economic data expected to play a secondary role in market price action.
However, amid the chaos as bond yields rise, analysts will be anxious to hear from Federal Reserve Chairman Jerome Powell as he speaks about his economic outlook at the Economic Club of Chicago on Wednesday.
In other central bank activity, markets will be interested to hear from the Bank of Canada as it announces its monetary policy decision next week. Analysts are expecting the central bank to keep interest rates unchanged as it tries to navigate the global trade war.
On Thursday, the European Central Bank will also hold its monetary policy meeting. It is expected that the ECB will continue to cut rates as it supports the region’s economy.
Economic data to watch next week:
Tuesday: Empire State Manufacturing Survey
Wednesday: Bank of Canada monetary policy meeting, Federal Reserve Chair Jerome Powell speaks at the Economic Club of Chicago
Thursday: European Central Bank monetary policy meeting, US weekly jobless claims, US housing starts and building permits, Philly Fed Manufacturing Survey
