During Donald Trump's first term as president, gold rose from $1,209 to $1,839. Factors included trade wars, geopolitical tensions and the covid-19 pandemic. Trump's protectionism and MAGA rhetoric incited BRICS like China, Russia and India to move away from the US dollar as the global reserve currency, and increase their gold reserves, pushing gold higher.
Under President Biden, gold prices continued their upward climb, reaching $2,450 on May 20, 2024. While Biden made efforts to mend relationships with allies, he presided over sanctions against Russia for invading Ukraine. The US and its allies also froze $300 billion of sovereign Russian assets, prompting many developing countries to buy gold to prevent the same thing from happening to them.
Which US president does gold prefer? — Richard Mills
Central bank gold buying accelerated under Biden and this, along with physical gold purchases in Asia, has been the main driver behind the gold price, despite a high dollar and elevated US Treasury yields. Both resulted from the Federal Reserve hiking interest rates to reduce inflation.
The Fed announced its first interest rate cut since the pandemic on Sept. 18, 2024. Since then, the federal funds rate has dropped 100 basis points, as have bond yields.
From a five-year high of 4.92% on Oct. 22, 2023, the benchmark US 10-year Treasury yield now sits at 4.24%.
Gold and silver have both benefited from looser monetary policy.
Source: CNBC
So far this year, spot gold has risen 32% and spot silver has gained 11%.
Source: Kitco
Source: Kitco
Gold
Hits new record high
But gold has received an added boost from President-elect Trump's threatened trade war, and it has continued to climb as the implementation date for 25% tariffs on Canada and Mexico, Feb. 1, came and went.
On Jan. 30 spot gold hit a new record of $2,798.50 during the trading session, while gold futures went even further to $2,846.20 per ounce. Factors included impending tariffs and fresh economic data that weakened the dollar. The US dollar and gold typically move in opposite directions.
Gold bullishness continued on Jan. 31, with bullion topping $2,800 for the first time. Spot gold added 0.5% to $2,809.16 an ounce as of 10:54 am in New York.
Bloomberg reported The precious metal, on track for its fifth consecutive weekly gain, has benefited from haven demand as Trump's tariff threats spur fears of trade wars that could sap economic growth. There are also worries that his pledges to cut taxes and overhaul immigration may erode US finances and reignite inflation. After Trump relented on tariffs on Canada and Mexico, giving each a one-month reprieve due to their actions to stem the flow of illegal drugs and migrants from crossing the US border, gold jumped again following the imposition of 10% tariffs on China on Tuesday, Feb. 4.
This time it was safe-haven demand providing the catalyst for bullion, which traded near the all-time high of $2,830 reached on Monday the 3rd. The Financial Post reported that Beijing hit back immediately with a range of levies on US products, noting There's plenty of uneasiness about what lies ahead, burnishing gold's appeal as a store of value in a hard-to-predict environment. Whether the dollar keeps rising will be important, as a strengthening US currency makes bullion more expensive for many buyers.
Among the biggest questions are how resilient the US and Chinese economies would be to a trade war, as well as the ripple-on effects for monetary policy if tariffs reignite inflation.
State Street Global Advisors' George Milling-Stanley told Kitco News it is not surprising that renewed investment demand is driving gold prices back to all-time highs, as investors seek protection against inflation and market volatility. SSGA thinks gold could push past $3,000 an ounce in the not-too-distant future.
Tariffs and gold prices
Some have speculated that the threat of tariffs from the United States could lead to shortages of deliverable gold and silver on the COMEX, a New York-based marketplace for trading contracts for metals like gold, silver, copper, and aluminum.
Fearing potential tariffs on gold by the Trump administration, traders are moving billions worth of gold (and surprisingly, silver), from the Bank of England to New York. Delivery times from the BoE have risen from a few days to 4-8 weeks, causing a gold shortage in London.
"People can't get their hands on gold because so much has been shipped to New York, and the rest is stuck in the queue," said one industry executive. "Liquidity in the London market has been diminished."
An example is JP Morgan Chase & Co, which will deliver gold bullion valued at over $4 billion this month against futures contracts in New York. Bloomberg said the delivery notices totaling 3 million ounces were the second-largest ever in bourse data going back to 1994.
Tariff fears have caused the prices of COMEX gold futures to rip past spot prices in London. Similar pricing dynamics have emerged in the silver futures market, with the disparity so large that traders, hoping to cash in on the arbitrage opportunity, have started flying silver into the country. Bloomberg states:
The precious metal is usually too cheap and bulky to justify the cost of airfreight, and one industry veteran says it's the first time they've seen it happen.
As reported by Natural News, gold futures prices are trading at a premium to spot prices, incentivizing shipments and driving COMEX inventories to a 16-month high. The website references a story first reported on by the Financial Times of London, revealing that traders have stockpiled an $82 billion gold reserve in New York since November's U.S. election. This massive movement of gold has left the BoE struggling to meet demand, raising questions about the central bank's ability to fulfill its obligations and sparking fears of a potential default.
Further, If the BoE is unable to meet delivery demands, the "paper" gold market—where investors trade gold contracts without taking physical possession—could face a catastrophic collapse.
Sprott Money explains how the situation could lead to the breakdown of the London/ NY Gold Pool — something that happened in 1968 when the rush to exchange dollars for gold broke the London Gold Pool.
The upshot? Now might be a good time to buy physical gold, because if the pool breaks, gold is going up:
Well, quite obviously, you should definitely get your hands on some physical gold while you can. The breaking of the London Gold Pool saw the gold price rise from $35 to $800 over the course of the decade that followed. What price follows the breakup of the current NY/London Gold Pool is unknowable. However, it's unlikely to be $2820. That much is certain.
Central bank buying
As mentioned at the top, central bank buying was one of the main factors for gold's substantial 27% gain in 2024 — the most since 2010.
Central banks bought more than 1,000 tons of gold for the third year in a row, with the National Bank of Poland the largest buyer adding 90 tons to its reserves.
Last year's investment demand for gold rose 25% to a four-year high of 1,180 tons, mainly because outflows from physically-backed gold exchange-traded funds (ETFs) dried up for the first time in four years…
Investment demand for bars rose 10%, while coin buying fell 31%.
According to the World Gold Council's latest report, global gold demand including over-the-counter (OTC) trading rose by 1% to a record 4,984.5 tonnes in 2024. Excluding OTC trading, total gold demand hit 4,553.7 tons, the highest since 2022.
Gold buying accelerated after Trump won the election in November. According to WGC, via Reuters, purchases by central banks accelerated by 54% year on year in the fourth quarter to 333 tons.
Quoting data from the London Bullion Market Association, the average gold price in 2024 rose to $2,386 an ounce, 23% higher than the average price in 2023. The average gold price in the fourth quarter climbed to a record-high $2,663 an ounce.
The upward price trend looks set to continue. Kitco News talked to Joseph Cavatoni, market strategist at the World Gold Council, who said, "The growing government debt burdens and the dramatically changing geopolitical landscape suggest that central banks will continue to buy gold."
Cavatoni noted that geopolitical uncertainty owing to the unpredictable Trump administration could lay the groundwork for further central bank demand, and he cautiously said CBs could repeat their 1,000-ton-plus net buying in 2025.
Cavatoni said that, overall, the broader trend is that given all the uncertainty in the marketplace, demand for gold will remain high through 2025, even at elevated gold prices.
Russians back up the truck
Usually China and India make headlines for being the nations that consume the most physical gold — including gold bars and coins for investment, and gold jewelry for special occasions like weddings. With all that is going on in Russia, it appears that Russians are embracing bullion in a big way. Bloomberg reported on Wednesday that Russians bought a record amount of gold last year as they sought to protect their savings amid sanctions, obtaining the equivalent of about a fourth of the country's annual output.
Consumers purchased 75.6 metric tons (2.7 million ounces) of the yellow metal in bullion, coins and jewelry in 2024, the fifth biggest figure among all nations, according to World Gold Council data published Wednesday. That's an increase of 6% on the previous year and more than 60% since President Vladimir Putin ordered his troops into Ukraine almost three years ago.
The news is even more compelling in that Russia's central bank, despite being one of the largest gold buyers, hasn't resumed purchases at significant volumes. According to Bloomberg, Retail gold demand shifted upward after the Kremlin's invasion of Ukraine as Russians started to find alternative ways of securing their savings instead of traditional investments in dollars or euros. Western sanctions last year intensified cross-border payment difficulties and led to some foreign currency shortages, while the ruble also fell to historic lows.
To spur gold sales, Russia canceled value-added tax on retail purchases of the metal right after the invasion following more than a decade of discussing such a move.
Gold supply crunch
Turning from gold demand to gold supply, it appears that AOTH's predictions of peak gold are bang on.
The concept of peak gold should be familiar to most readers. Like peak oil, it refers to the point when gold production is no longer growing, as it has been, by 1.8% a year, for over 100 years. It reaches a peak, then declines.
At The Northern Miner's International Metals Symposium in London on Dec. 2, a presenter from CRU Consulting said global gold production will peak at 3,250 tonnes, or 105 million ounces, next year, before entering a period of prolonged decline.
From 2025 onward, according to gold and base metals analyst Oliver Blagden, reserves will deplete, ore grades will decline and aging mines will close. Even if all planned projects come online, production could drop by up to 17% by 2030, Blagden noted.
China and Russia both face challenges in maintaining output levels, while in West Africa there has been a rise in resource nationalism, particularly Mali and Burkina Faso which have nationalized operations thus deterring foreign investment.
North America, while politically stable, remains the highest-cost region for gold mining.
None of this is new to Ahead of the Herd. Regarding our wheelhouse, the junior mining sector, the Northern Miner quotes Blagden saying that, despite the industry being on strong financial footing, with 97% of gold producers operating at positive margins and average all-in-sustaining cost margins at 47%, there is not enough investment in exploration. He said high-grade, well-located projects are harder to find, and he called for miners to act decisively during this period of high profitability. "Without new projects, mines will close, production will fall, and profits will shrink," he said.
According to S&P Global, funds raised by junior and intermediate mining companies fell in December to $890 million. Despite a 2% increase in transactions, fewer high-value gold and other metals financings weighed down the monthly totals, resulting in year-to-date financings dropping 12% to $10.27 billion, the lowest since 2019.