Economic slowdown push gold

31 Ocak 2025

Economic slowdown, trade and geopolitical uncertainty push gold to $2,800/oz

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

Gold continues its historic gains for the second day, surpassing $2,800/oz for the first time in spot transactions and $2,860 in COMEX continuous futures.

Gold’s gains come amid growing uncertainty about the path of the US and global economy, the anticipated trade war, and potential geopolitical tensions with China.

As we approach seeing the first chapters of the trade war between the United States, led by Donald Trump, and the world with the imposition of tariffs tomorrow. While uncertainty still clouds this key file, whether about the size and scope of the tariffs in the end or the potential impact on the US and global economy.

The negotiations have not stopped between the United States, Canada, and Mexico regarding the scope of the goods that will be covered by the tariffs, according to The Wall Street Journal, which also mentioned business owners’ concerns about supply chain disruptions and higher prices.

Uncertainty about the future of global trade under Trump and its potential impact is fueling hedging demand for gold from the United States. According to figures reported by Reuters, gold exports from Switzerland to the United States in December rose to their highest level since March 2022 – following the war in Ukraine – at 64.2 tons, which is 20 times what they were in December 2023.

Another aspect of uncertainty is the potential escalation of tensions between the United States and China, not only due to the trade war but also the dispute over strategic interests in Panama Canal. Trump had threatened during his election campaign to regain sovereignty over the vital shipping channel.

Meanwhile, US Secretary of State Marco Rubio reiterated Trump’s threats yesterday, saying that in four years from now, US interests in the Panama Canal will be more secure, and that Trump’s intention to control the canal stems from national security concerns about the possibility of China controlling the canal’s activities, according to what he said in an interview with SiriusXM.

So, the United States has been in a four-year conflict with China over the Panama Canal, trade terms and Taiwan, and uncertainty about this tension between the two poles is likely to be a factor that fuels demand for safe havens, most notably gold.

In addition, the US domestic scene is also witnessing uncertainty that was spread by Trump’s suspension of all federal financial aid. The decision has sparked widespread frustration with the risk to thousands of programs that benefit families in the United States and may cause harm to states and local governments that rely on billions of dollars in federal loans and grants, in addition to concerns in the technology, mortgage, health, infrastructure and energy sectors, according to Politico.

Gold’s gains also come even after Jerome Powell’s speech after the Federal Reserve announced that it would hold interest rates steady. While the speech carried a still tightening tone and reflected the hesitation of monetary policymakers regarding the pace of rate cuts, it did not significantly change previous expectations that a rate cut would not be possible before next June. This has allowed gold to continue its gains, as inflation accelerated again last December and uncertainty about price pressures did not cause negative surprises in Powell’s speech.

However, keeping interest rates high for a long time may also intersect with the fluctuating economic performance in the United States, which may threaten the resilient image of the economy in the face of tight monetary conditions, which may cause more luster for gold as a safe haven.

The GDP recorded an unexpected slowdown in the last quarter of last year to 2.3% compared to 3.1% in the previous quarter in the data published yesterday, in addition to a sharp and unexpected contraction in pending home sales in December by 5.5% on a monthly basis.

These figures are added to a series of weaker-than-expected GDP figures in the eurozone and its major economies, Germany and France, which did not grow in the fourth quarter of last year, which in turn feeds uncertainty about the future of the global economy, which faces trade and geopolitical escalation with a horizon that is not close to a settlement.

 

Zaid Barem / YMM