Key events
The Financial Times’s Lex column has a good take on gold today, arguing that it is “unlikely to lose its lustre any time soon”, given its status as protection against risks.
Lex writes:
It is the ultimate shock absorber: against geopolitical maelstroms, inflation and — as a non-yielding asset — lower interest rates.
This trio of latter-day horsemen is galloping across the horizon. Natural orders are being ripped apart as US President Donald Trump toys with ideas like modern-day colonisation, civil-service defenestration and swingeing tariffs. The latter could well tip the US into recession. Since November’s election US gold stockpiles have more than doubled.
AJ Bell: The gold rush continues
We appear to be in the third major bull run in gold since Richard Nixon withdrew America from the gold standard on 15 August 1971, reckons AJ Bell investment director Russ Mould.
He explains:
“The first surge took place in the 1970s, after Nixon’s policy switch that was designed to free up room for US government spending, particularly in Vietnam. Two oil price shocks, in 1973 and 1979, stoked inflation and investors took fright from paper assets and promises, such as government debt, and sought out ‘real’ assets where supply only grew slowly instead.
“The second took place in the early 2000s, as central banks played increasingly fast and easy with monetary policy in response to a series of crises, real or perceived. They ranged from the collapse of the LTCM hedge fund in 1998, the millennium IT bug, the collapse of the technology, media and telecoms bubble and then the Great Financial Crisis and the European Debt Crisis. Record-low interest rates and Quantitative Easing followed, to persuade some investors that central banks and policymakers had lost control, just as it seemed they had in the 1970s.
“The third, and current surge, has its origins in the last decade, as central banks continued to run zero-interest rate policies and did little to sterilise QE. Then came the Covid pandemic, and a crisis for which already-tattered government balance sheets were, in many cases, ill-prepared. Government borrowing surged, especially in the UK and USA, and in the latter the federal debt has continued to grow at an unprecedented pace. The result is that the annual interest bill is now $1.2 trillion, or more than a fifth of the federal tax take, a situation that seems unsustainable. The Trump administration is trying to tackle this head on, with tariffs and efforts to boost America’s manufacturing base, but perhaps gold bugs are sensing another shift in global monetary policy and how the system is managed, especially as inflation remains stubbornly above central banks’ 2% target.
Back when Nixon took the US off the gold standard, bullion was valued at $35 per ounce under the Bretton Woods fixed exchange rate system – a price that proved impossible for the US to stick to, as the money supply increased and other countries swapped their dollar reserves for gold.
Once the US was no longer committed to backing every dollar overseas with gold, at that price, gold began to climb steeply, and by January 1980 it had hit $835 per ounce.
Australian bank ANZ reckons gold has further to climb.
ANZ raised its zero to 3-month gold price forecast to $3,100 per ounce and 6-month forecast to $3,200 per ounce, according to a research note on Tuesday, Reuters reports.
They say:
[For gold] we maintain our bullish view, amid strong tailwinds from escalating geopolitical and trade tensions, easing monetary policy, and strong central bank buying.
They also point out that physical gold has been moving from London to the US, as fears that Donald Trump could impose tariffs on precious metal imports have raised prices States-side:
“As for the gold market, fear of import tariffs has tightened liquidity in the London spot market, as supply flows to the U.S. This has triggered arbitrage trades, with a widening spread between Comex futures and London spot”.
Gold hits record high over $3,000 amid geopolitical tensions and weakening US dollar
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
It’s been a record-breaking year for gold, as nervous investors have sought out safe-haven assets.
And this morning, the precious metal has hit a fresh all-time high above $3,000 per ounce, driven by escalating geopolitical tensions in the Middle East, trade war fears and the weakening US dollar.
Gold touched $3,017.64 per ounce, as news broke that Israeli military forces have launched widespread strikes on targets across Gaza early today, leading to fears that the shaky ceasefire in the region is over.
This means gold has climbed by 15% since the start of this year, having ended December at $2,623/ounce, adding to its 27% surge during 2024.
As this chart shows, it has now doubled over the last five years:
The recent weakness of the US dollar has also pushed up the gold price. The greenback is trading near a five-month low against a basket of other currencies, as traders worry that Donald Trump’s enthusiasm for tariffs will trigger a full-blown trade war, that could push the US into recession.
As analysts at Deutshe Bank put it:
Investors continue to rotate away from the US dollar and find perceived safe havens amidst the heightened policy uncertainty.
Linh Tran, market analyst at XS.com, reports that rising tensions in the Middle East and the escalating U.S.-China trade conflict have both driven investors toward gold as a safe investment channel, adding:
These uncertainties have not only increased demand for gold but have also pushed significant capital inflows into the precious metals market, contributing to gold reaching record-high prices.
The agenda
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9.30am: ONS releases changes to the UK inflation basket
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10am GMT: ZEW eurozone economic confidence survey
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12.30pm GMT: US housing starts/building permits data for February
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1.15pm GMT: US industrial production for February
