Gold prices have reached an unprecedented milestone, surpassing $3,000 an ounce for the first time in history. This surge is largely fuelled by a vigorous buying spree by global central banks, states Bloomberg.
Since Russia’s 2022 invasion of Ukraine, central banks have increasingly turned to gold to diversify reserves and reduce dependency on the US dollar. The dollar’s use as an economic weapon has driven nations like China, India, Poland, and Turkey to bolster their gold holdings. Central bank gold buying has doubled in the past two years, reinforcing the metal’s status as a reliable store of value in turbulent times.
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Economic fragility and inflation
Persistent economic uncertainties and high inflation rates have further boosted gold’s appeal. The metal has historically been a hedge against inflation and economic downturns. As global markets wrestle with fragile economic conditions and fears of potential recessions, investors are seeking the security gold offers. The combination of weak economic growth, geopolitical tensions, and rising costs has reinforced gold’s standing as a safe haven.
Impact of US trade policies
The aggressive trade policies of President Donald Trump‘s administration have added another layer of uncertainty. The imposition of tariffs on allies and strategic rivals, including Canada, Mexico, the European Union, and China, has escalated global trade tensions. Investors, wary of the potential fallout from an unpredictable trade environment, have turned to gold as a safeguard. The influx of more than 23 million ounces of gold into New York’s Comex futures exchange reflects this trend, contributing significantly to the US trade deficit.
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Investor sentiment
Crossing the $3,000 mark underscores gold’s role as a barometer of fear and economic instability. Investor sentiment has been a crucial driver, with many not wanting to miss out on the rally. Historical precedents show that gold prices tend to soar during times of heightened uncertainty. The psychological momentum of hitting key price points, combined with a fear of missing out, has further accelerated demand.
Challenges
Gold’s rally has occurred despite traditionally negative factors like higher interest rates and a strong US dollar. Yet, global demand, especially from China,
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