Gold Poised for Continued Rally Amid Trade War Concerns and Central Bank Buying
Gold prices experienced a slight pullback on Tuesday following a rapid 10% surge year-to-date. However, analysts remain bullish on the precious metal, citing recent tariff announcements and the potential escalation of trade tensions.
Geopolitical Uncertainty Fuels Gold Demand
Wall Street analysts believe that gold will continue to gain value due to increased geopolitical uncertainty and the threat of a trade war. President Donald Trump's tariff plan on steel and aluminum imports has sparked concerns about retaliatory measures from other countries.
Central Bank Support
In addition to geopolitical factors, gold is also expected to benefit from continued buying by central banks. The World Gold Council reported that central bank gold demand reached record levels in 2024, with significant purchases occurring in the fourth quarter.
Demand from China
The recent approval by Chinese authorities for 10 insurance firms to purchase gold as part of a pilot program is expected to further boost demand for the metal. Nigel Green, CEO of deVere Group, believes that this green light will "supercharge demand" for gold in China.
ETF Inflows
Exchange-traded funds (ETFs) have also played a role in gold's recent rally. Investors have sought exposure to the precious metal through ETF investments, contributing to inflows into the market.
Federal Reserve Impact
Analysts anticipate that further interest rate cuts from the Federal Reserve later this year will also support gold's investment case. Gold is traditionally seen as a hedge against inflation, and lower interest rates can make gold more attractive.
Short-Term Overextension
Despite gold's strong performance this year, analysts caution against potential overextension in the short run if tariff threats do not materialize. Gold futures have been rising on uncertainty, and a resolution could lead to a retracement.
Investors should monitor the upcoming Consumer Price Index (CPI) print on Wednesday for clues on the Federal Reserve's rate cut plans and the potential impact on gold prices.