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Gold prices have surged recently, driven by escalating trade tensions that have prompted investors to flock to this traditional safe haven. In contrast, assets like U.S. Treasuries and the dollar have experienced declines.
This shift can be attributed to significant changes in U.S. trade policy during President Donald Trump’s administration. According to Vivek Dhar, the director of mining and energy commodities research at the Commonwealth Bank of Australia, gold has effectively filled the gap as the market’s preferred safe asset.
“What makes this recent flight to safe-haven demand so unique is that the U.S. dollar and Treasuries have been sold off as the safe-haven appeal of these U.S. assets has declined,” Dhar remarked.
Gold prices have reached unprecedented levels, hitting $3,500 per ounce recently, with many analysts predicting continued upward momentum. J.P. Morgan forecasts an average of $3,675 per ounce by the fourth quarter of 2025, potentially reaching $4,000 by mid-2026.
In contrast, U.S. Treasuries have faced a sell-off in recent weeks, with the yield on 30-year bonds recently peaking at levels not seen since November 2023. Data indicates that the U.S. dollar index has fallen approximately 8% this year.
Despite an increase of only about 2 basis points in the long-dated Treasury yields year-to-date, the response to Trump’s announcement of tariffs was sharp, with yields spiking by over 30 basis points in just a week. Concurrently, spot gold prices have appreciated by 25% this year, based on LSEG data.
While U.S. Treasury yields have recently decreased and the dollar has shown slight recovery following Trump’s comments about potentially firing Federal Reserve Chair Jerome Powell, the impact on investor confidence in U.S. assets has already been significant.
“Although this is far from a ‘Death of the U.S. Dollar’ narrative, it is evident that investor confidence in the U.S. economy and its principal assets, namely the dollar and Treasuries, has diminished,” stated John Reade, a market strategist with the World Gold Council.
Analyzing the Gold Rush
The traditional inverse correlation between Treasury yields and gold appears to be faltering. Typically, rising yields make bullion less attractive due to the higher opportunity cost of holding a non-yielding asset.
However, gold’s reputation as a hedge against inflation is becoming increasingly significant, as noted by Michael Ryan, a lecturer at the University of Waikato’s School of Accounting, Finance and Economics. He believes tariffs could elevate inflation in the U.S., thus implying higher future interest rates that would further pressure Treasuries.
“Gold, traditionally viewed as an inflation hedge, is gaining special status amidst these developments,” Ryan emphasized.
Gold’s appeal is partly due to its lack of credit risk, as it isn’t linked to the political or economic situation of a single country. Analysts suggest that skepticism regarding the reliability of U.S. assets, driven by both economic instability and geopolitical concerns, has also compromised traditional confidence in them.
“There is a diminishing trust in U.S. assets stemming from ongoing economic and geopolitical uncertainties,” noted Soni Kumari, a commodity strategist at ANZ.
Trump’s tariff strategies have been met with criticism, further bolstering gold’s status as a financial instrument seen as immune to monetary and fiscal policy changes. According to Alexander Zumpfe, a senior precious metals trader at Heraeus, gold’s independence from any one nation is particularly reassuring in such uncertain times.
Additionally, the decreased attractiveness of the dollar contributes to gold’s appeal. A depreciating dollar generally enhances the value of commodities priced in dollars, including gold, for investors holding other currencies.
“Diversification Drive”
Central banks in emerging markets, traditionally holding less gold compared to their developed market counterparts, are increasingly turning to gold as part of a diversification strategy away from dollar-based reserves. Eli Lee, chief investment strategist at Bank of Singapore, notes that this shift is likely to strengthen demand for gold.
The recent decline in the dollar has ignited discussions about a potential global shift away from dollar dependency, raising questions about the future of the U.S. dollar as the leading reserve currency.
Gold has been positioned by some analysts as a prospective alternative to the dollar in this role, highlighting its value as a safeguard against potential U.S. policies that could freeze currency reserves for nations that do not align with U.S. interests.
While the move away from the dollar has been positive for gold, experts like Dhar point out that substantial barriers exist to any significant shift away from the dollar, such as the logistical challenges associated with securing and storing gold, which does not generate interest.
Despite some reevaluation of U.S. Treasuries’ status as a safeguard, the reality remains that their bottom-line liquidity is unmatched in the global market, a position that is not likely to change in the near future as the world moves toward a more multipolar dynamic.
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