Gold is speeding down the highway, setting new records practically every day. Gold price hit its most recent all-time high last night at $3,218 and is up by 37% over the last 1-year.
After crossing $3,000 in March, gold faced some pressure. The sell-off in the equity market resulted in massive margin calls for traders, thus, gold had to be liquidated to meet those margins.
Now, gold is back above $3,000 and going strong. Currently, gold trades around $3,232, driven by safe-haven demand amid rising US-China tensions. In India, the gold rate today is Rs 93,500 and is steadily inching towards the Rs 1 lakh mark.
The chart below shows gold falling below $3,000 and then bouncing back.
Source: Tradingeconomics
Gold has already gained over $400 year-to-date, thanks to various reasons favouring the yellow metal. Three possible reasons for the safe-haven buying in gold: The bond market meltdown, pressure on the US Fed to cut rates, and the weakening of the dollar.
Bond Market Meltdown
US Treasuries are considered to be the safest place to park one’s money. After all, US Treasury bonds are backed by the sovereign power of the United States government. But then one event may have dented that belief. Yes, it was Trump, and his obsession with tariffs. Trump was adamant on the implementation of tariffs from April 9, and a day before, the US Treasury market cracked.
That day, there was huge selling pressure on US Treasuries, sending bond prices lower and yields sharply higher. That day, the 10-year US Treasury yield shot up towards 4.5%, a six-week high.
Subsequently, however, calmer heads prevailed. Trump announced a 90-day moratorium on reciprocal tariffs, except for China. The bond market sell-off could have been a factor in Trump’s softening stance. The selloff in the bond market calls into question the reliability of Treasuries as a traditional haven.
In this uncertainty around treasuries, a favourite go-to for parking funds, investors turned to gold. This is not very surprising as to an investor, now US bonds appear relatively unsafe. No wonder gold has been considered ‘God’s Own Currency’ since time immemorial.
Tip to Note: When the 10-year US Treasury yield spikes, gold shines.
Dollar and Gold
The US dollar is under pressure.
» Read More
