Gold prices rose significantly in Asian trading on Wednesday, supported by safe-haven appeal. This rally came after US tariffs took effect, imposing a 104% duty on Chinese imports. The US dollar later fell to a six-month low, further strengthening gold’s appeal as a safe-haven investment.
Gold prices rise amid trade tensions
At 2:35 AM ET, spot gold rose 1.6% to $3,031.02 per ounce, while June gold futures jumped 1.9% to $3,046.61 per ounce. Prices had been on the decline earlier in the week, with gold falling below $3,000 per ounce, its lowest level since March 13.
Despite this decline, prices rose after US President Donald Trump announced that he would impose 104% tariffs on China. This decision was the most significant in a series of measures that saw tariffs on Chinese imports increased, including 50% increases on some products.
Impact of Tariffs on Metal Markets
The United States imposed tariffs on several countries, including 20% on the European Union and 24% on Japan, raising fears of further economic turmoil. China responded with pledges to continue “fighting to the end” if the tariffs are implemented, increasing market uncertainty.
Central banks have captured more than a fifth of the total gold on the market each year, which analysts say is unprecedented.
Meanwhile, the US dollar fell sharply, falling 0.7% to a six-month low, making gold more attractive to foreign investors. Meanwhile, prices of other metals such as silver and platinum rose, with silver futures up 1.8% and platinum futures up 0.5%. However, copper futures expiring in May saw a 0.6% increase, indicating some optimism in the market in the short term.
Is gold still the best choice amid economic volatility?
Despite recent sharp declines in gold prices, gold remains a preferred choice for investors seeking to hedge against economic risks. Gold prices unexpectedly fell after hitting record highs at the beginning of the week. However, gold is expected to rise again as fears of a global recession persist.
Growing Demand for Gold Amid Global Economic Situation
Fears of a global recession and rising inflation are among the main reasons why investors are seeking safe havens such as gold. Despite recent volatility, analysts believe that gold will remain in strong demand in the coming period.
“Gold is considered a hedge against inflation, and tariffs are inflationary factors that could impact the global economy in the long term,” said the chief macro strategist at Becton Bank Australia. He added that in the event of a global recession, many investors would turn to gold as a safe option, especially given the low interest rates on bonds.
Gold Rises Due to Increased Demand from Central Banks
Another factor contributing to the rise in gold prices is the increased demand from central banks. After Russia’s US dollar assets were frozen following its invasion of Ukraine, many countries began diversifying their reserves away from the US dollar, prompting them to purchase more gold.
According to data from the World Gold Council, central banks have purchased more than 1,000 tons of gold annually since the start of the war in Ukraine, double the amount purchased in the previous decade. This demand from central banks reflects a strong desire to maintain reliable gold reserves in the event of economic or financial volatility.
Central Banks and the Importance of Gold as a Safe Asset
Many countries, including Russia, China, and India, are turning to gold stockpiling as part of their economic strategy. Although the United States holds the largest amount of gold, other countries have increased their investments in the yellow metal due to political and economic tensions.
What would happen if the United States imposed tariffs on gold?
If the United States imposed tariffs on imported gold, American consumers would be the most affected. As Becton predicted, gold prices within the United States could rise, while global demand for gold could see some slight changes.
However, the scenario of imposing tariffs on gold does not seem likely at the present time. It is worth noting that the gold market is global, with hundreds of billions of dollars of gold traded daily, making it resilient to any disruptions that might result from tariffs.
In light of the current economic turmoil and trade tensions between the United States and China, gold remains one of the most prominent safe havens for investors. With continued fears of an economic recession and increased demand from central banks, analysts expect gold to remain a preferred investment in the coming periods.
Copper Declines Due to Trade Concerns
Despite the rise in gold prices, copper prices witnessed a significant decline in global markets. This decline comes as investors assess the repercussions of US tariffs on industrial metals. China is the world’s largest consumer of copper, and any change in its trade could significantly impact global demand for the metal.
Copper futures on the London Metal Exchange fell 0.6%, reflecting concerns about the impact of the trade war on the global economy.
