Gold Hits Record High Amidst Global Uncertainty
Gold has successfully breached the $3000 (~Rs 88000) mark, driven by heightened risk aversion. After closing 2024 at $2640 (~Rs 77800), the "Gold and Silver Outlook—2025" report advised purchasing gold on January 1, 2025, with a projected target of $3000 for the year. Remarkably, gold prices have surged nearly 14% year-to-date in just two and a half months, fueled by concerns over the Trump administration's tariffs and their potential impact on the US and global economy.
Softer Inflation Boosts Gold Prices
Traders are increasingly betting on the Federal Reserve enacting deeper interest rate cuts this year due to growing fears of an economic downturn triggered by aggressive US trade policies. Softer inflation data released this week further supports these expectations.
According to Wednesday’s report, the US Consumer Price Index (CPI) rose by 2.8% annually in February, down from 3% in the previous month. Additionally, the US Producer Price Index (PPI) remained steady, with the annual rate dropping from 3.7% in January to 3.2% in February. These figures, combined with signs of a cooling labour market, strengthen the case for further Federal Reserve easing.
Expectation of Three FED Rate Cuts
The market currently anticipates three 25-basis-point rate cuts from the Federal Reserve during its monetary policy meetings in June, July, and October. This outlook continues to support the non-yielding yellow metal, though certain factors are likely to limit further price advances.
Tariff Wars Escalate
President Trump has intensified the tariff war by threatening a 200% penalty on European wine and cognac imports unless the European Union removes tariffs on American whiskey. This move follows the administration's 25% tariff on all steel and aluminium imports, which took effect Wednesday. Concerns over escalating trade tensions between the US and its largest trading partner have driven gold prices to new record highs.
Strong Demand from ETFs and Central Banks
Robust demand from exchange-traded Funds (ETFs) and continuous central bank purchases are providing additional support for gold prices. China increased its gold purchases for the fourth consecutive month in February. Meanwhile, Russian President Vladimir Putin has expressed conditional support for a 30-day ceasefire proposed by the United States and Ukraine. Additionally, optimism over the possibility of avoiding a US government shutdown is bolstering investor confidence.
The US Dollar Index also remains weak, declining approximately 6% year-to-date in 2025.
What’s Next for Gold and Silver?
Traders are closely monitoring the upcoming preliminary release of the Michigan US Consumer Sentiment and Inflation Expectations Index for potential short-term opportunities. Attention will soon turn to the critical two-day Federal Open Market Committee (FOMC) meeting starting next Tuesday.
Gold Apr Futures Daily Chart
Having reached the $3000 (~Rs 88000) milestone, gold is expected to continue its upward trend towards $3035 (~Rs 88800) and $3080 (~Rs 90000) in the coming weeks. However, some retracement and profit-booking may follow, potentially bringing prices down to $2800 or even $2700.
Silver May Futures Daily Chart
On the other hand, silver prices have also climbed above $34 (~Rs 100,000) amid strong demand, with the next resistance level expected at $35 (~Rs 103,000).
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