Gold prices soared briefly above $3,490 per ounce on Tuesday, hitting a new record high, before settling back down around $3,490 per ounce.
This was primarily because of higher safe haven demand, as more investors flocked to the precious metal following US president Donald Trump’s changing tariff statements and his escalating criticism against US Federal Reserve chair Jerome Powell.
Although Trump has announced a 90-day pause for his so-called reciprocal tariffs, global stock markets have already been significantly hit, with investors also worrying about whether this hiatus will be long enough.
Gold prices have already climbed 5.7% this week and 14.2% this month. The precious metal has also soared almost 31% so far this year.
What is driving gold’s rally?
One of the biggest factors contributing to gold’s current rally is Trump’s increased scrutiny and criticism of the US Federal Reserve recently. The US president has slammed Fed chair Jerome Powell for not decreasing interest rates fast enough, despite inflation having come down significantly already.
In a post on his social media platform Truth Social on Monday, Trump said: “Preemptive cuts” in interest rates are being called for by many. With Energy Costs way down, food prices (including Biden’s egg disaster!) substantially lower, and most other “things” trending down, there is virtually No Inflation.”
He added: “With these costs trending so nicely downward, just what I predicted they would do, there can almost be no inflation, but there can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW.”
Trump is also reportedly looking into the possibility of having Jerome Powell fired. However, although the Fed chair is appointed by the US president, it is an independent role. According to Powell, this means that the chair cannot be legally demoted or fired by the president without cause.
However, the US Supreme Court is currently considering a case which could make it easier for Trump to fire Powell.
Trump’s statements about Powell have given rise to concerns about the potential politicisation of US monetary policy, which could undermine the Fed’s credibility and significantly damage investor confidence as well.
This has led to increased economic and market turmoil, leading to rising demand for safe haven assets such as both gold and silver, which has seen a 1.3% jump this week as well.
A weaker US dollar, and escalating global trade tensions, fuelled by strained EU-US and US-China relations have also contributed to this demand.
Currently, the US has imposed tariffs of up to 245% against China, while China has implemented a 125% levy on the US.
Tensions between the US and China could further deteriorate in the coming weeks, following Trump recently launching a probe into US critical minerals imports. If so, this could continue to support gold’s rally.
Although global gold supply is relatively robust at the moment, aging mines, depleting reserves and declining ore grades still remain a concern, which could push prices up even more in the long term.
