GOLD Analysis
Afternoon: Gold Soars to Record Highs Amid US-China Trade Turbulence, Dollar Weakness, and Fed Rate Cut Speculation
Highlights:
- Gold prices smash records: MCX futures hit ₹95,430/10g, while global prices peak at $3,317/oz on safe-haven demand.
- US-China trade war escalates: New 125% Chinese tariffs and Trump’s mineral import probe negate earlier tariff exemptions.
- Dollar weakness and Fed dovishness: A softer USD and rate cut expectations amplify gold’s appeal, with ETF inflows hitting multi-year highs.
Overview:
Gold prices surged to unprecedented levels globally, with international spot prices hitting $3,317 per ounce and domestic MCX futures reaching ₹95,430 per 10 grams. This rally reflects a confluence of macroeconomic uncertainties, geopolitical tensions, and monetary policy shifts. Investors flocked to gold as a safe-haven asset amid escalating US-China trade hostilities, policy flip-flops by the Trump administration, and a softening US dollar.
Drivers of Gold’s Ascent
- Trade War Escalation: The US-China trade conflict intensified as President Trump ordered a probe into vital mineral imports (potentially imposing tariffs) and China retaliated with 125% tariffs on select goods. This follows earlier US threats of 145% duties, heightening fears of prolonged economic disruption.
- Weaker Dollar and Fed Policy: A depreciating US dollar (down ~2% YTD against major currencies) enhanced gold’s appeal for foreign buyers. Markets also priced in potential Fed rate cuts in 2024, reducing the opportunity cost of holding non-yielding bullion.
- Safe-Haven Demand: Policy unpredictability, including Trump’s abrupt tariff reversals (e.g., exemptions for tech products and auto parts) and fears of stagflation, drove inflows into gold-backed ETFs. Central banks, led by China and India, continued aggressive purchases to diversify reserves.
China’s Mixed Signals
Despite China’s Q1 GDP growth beating estimates (6.4% y/y), optimism was overshadowed by trade tensions. Retaliatory tariffs and the US probe into mineral imports—critical for tech and defense sectors—raised risks of supply chain disruptions, further fueling gold’s rally.
Market Sentiment and Institutional Outlook
Major banks remain bullish, citing sustained ETF inflows (global holdings up 15% YTD) and persistent central bank buying. Goldman Sachs revised its 2024 gold forecast upward, projecting $3,500/oz amid "structural macroeconomic uncertainty."
Upcoming Economic Data
Key releases include:
- Euro Zone: Final Core CPI (y/y) – expected to hold at 3.1%.
- US: Core Retail Sales (m/m), Industrial Production (m/m) – critical for gauging Fed policy direction.
Weak US data could reinforce rate cut bets, further supporting gold.
Risks and Outlook
While gold’s rally faces headwinds from potential trade de-escalation or a dollar rebound, the current environment favors upside. Analysts warn that prolonged tariffs could stoke inflation, creating a "goldilocks scenario" for bullion as both a hedge and store of value