Gold as the Top Safe Haven
Gold surged to a record $3,200 per ounce on Friday, solidifying its position as the top safe-haven asset in light of escalating tensions between China and the US. The surge in gold prices came as the dollar and bonds both slid, reflecting investors’ shifting sentiments toward US assets amidst an intensifying trade war.
Impact of US-China Trade War on Gold Prices
On Friday, China announced it would raise duties on US goods to 125%, a direct response to the Trump administration’s move to increase reciprocal tariffs on China to 145%. While tariffs on other countries were paused for 90 days, this move further fueled the already volatile market.
“The new highs in gold are signaling a shift in appetite for US assets,” said Ryan McIntyre, senior managing partner at asset manager Sprott. “Confidence in the US has clearly been shaken, so people are looking to diversify.”
Bond Market Reaction and Treasury Yields
The long-dated bond market, typically a safe haven, also saw significant turbulence this week. Treasuries sold off, and on Friday, the 10-year yield (^TNX) surged to its highest level since February, trading at around 4.56%. This unexpected rise in yields added to the uncertainty in the market as bond prices and yields are inversely correlated.
“Usually, gold would need to consolidate at new lows before fresh buyers emerge to take advantage of lower prices,” said David Morrison, senior market analyst at Trade Nation. “But investors were desperate to find a safe haven amidst the market carnage, particularly after the flight into US Treasuries went so spectacularly wrong.”
Dollar Weakens as Investors Shift Focus
Alongside the surge in gold, the dollar (DX=F) index came under pressure, briefly touching its lowest level since 2022. This weakness in the greenback has been attributed to market uncertainty driven by the trade war and tariff increases, as investors sought refuge in assets like gold.
Year-to-Date Performance of Gold
Gold futures have risen more than 24% year-to-date, hitting numerous all-time highs along the way. This rally has been driven by tariff uncertainty, recession fears, and growing expectations that the Federal Reserve may need to intervene with rate cuts this year. The ongoing market instability has created an environment where gold continues to shine as a hedge against the chaos.
Gold’s Rally and Central Bank Demand
Central banks’ demand for gold reached all-time highs last year, and there has been a significant increase in inflows into physical gold-backed exchange-traded funds (ETFs). With continued geopolitical tensions and market uncertainty, the bull case for gold remains strong.
