Geopolitical Tensions
The introduction of sweeping tariffs by
President Donald Trump, especially those targeting China with rates up to 145%,
created upheaval in global financial markets. These policies have led investors
to question the reliability of traditional safe assets like US Treasuries and
the dollar, prompting a shift towards gold as a more stable alternative.
Economic Uncertainty
Concerns about a potential US recession
have intensified, with Goldman Sachs estimating a 45% probability of such an
event within the next year. This economic uncertainty enhances gold’s appeal as
a hedge against downturns, contributing to its rising demand and price.
Purchases by Central Banks
Central banks worldwide are increasing
their gold reserves, partly as a strategy to reduce reliance on the US dollar.
This trend of de-dollarization supports higher gold prices, as nations seek to
diversify their holdings amid shifting global economic dynamics.
Currency Depreciation
Persistent inflation is eroding the value
of paper currencies, prompting investors to turn to gold as a means of
preserving purchasing power. As the US dollar weakens, gold's role as a hedge
against inflation becomes increasingly significant.
Safe-Haven Demand
The volatility in global markets,
exacerbated by trade tensions and economic uncertainties, has led investors to
seek refuge in gold. Its status as a safe-haven asset during turbulent times
further drives its demand and price upward.
Way Forward
Analysts remain bullish on gold prospects,
with forecasts suggesting prices could touch US$3,500 by June end 2025, US$ 4,000
by end December 2025 and US$5,000 by end December 2026. However, a point to
remember is that if the trade war intensifies, the price may rise at a faster
pace.
A more disturbing fact is that confidence
of people around the world in the US administration – as a trustworthy friend and
US$ as a dependable currency is eroding. The talk about an alternate currency
to replace US dollar is getting louder.
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