Growing uncertainty fuels speculative appetite for gold

12 March 2025

Growing uncertainty fuels speculative appetite for gold to capitalize on high volatility

Written by Samer Hasn, Senior Market Analyst at XS.com

Gold is trading slightly lower today, down 0.16% after yesterday’s notable gains of nearly 1%, while prices remain stable near $2,920 per ounce in spot trading.

Gold’s recent gains come as market turmoil has deepened due to Donald Trump’s repeated start-and-stop about tariffs. This is compounded by uncertainty about the economic impact of tariffs on the US economy amid escalating talk of a recession.

Hours after Trump threatened to raise tariffs on steel and aluminum imports from Canada to 50%, he later backed down, leaving them at 25%, which takes effect today. This is not the first time Trump has backed down from a threat or decision at the last minutes or hours, either to extract a concession or under domestic pressure.

This repeated hesitation has raised concerns among business owners and investors about Trump’s lack of a clear economic plan, as well as tensions among members of the president’s own economic team, according to the Wall Street Journal.

The Journal’s Editorial Board argues in an opinion piece that uncertainty over tariffs is frustrating consumers and businesses, potentially slowing growth even despite the long-term impact of tax and regulatory relief.

Even with these fragile market fundamentals and increasing talk of a recession, gold is on a zigzag path and doesn’t appear to be fully benefiting from the heightened uncertainty in the economy, stock markets, or bond markets – The MOVE Treasury bond index is at its highest level since November, and the VIX fear index is at its highest level since August.

Speculators appear to have strengthened their role in driving recent price movements, exploiting periods of high volatility to generate higher returns. Since the beginning of March, we have witnessed a daily increase in open interest in COMEX gold futures contracts, from 489,000 contracts to more than 509,000, representing a growth of approximately 4%.

The Gold Volatility Index (GVZ), which calculates the implied volatility of COMEX gold futures options, also shows an upward trend. High volatility attracts more short-term speculators, which could leave gold vulnerable to continued relatively high volatility in the coming days.

Today, in particular, could witness a renewed wave of volatility as markets await the February CPI reading, with expectations of a decline below the 3% threshold to 2.9% year-on-year. Meanwhile, an unexpected acceleration in inflation could exacerbate uncertainty and reinforce the stagflation hypothesis.

 

Zaid Barem / ymm