Since early November 2024, the gold price has risen from USD 2,600 to highs of above USD 3,500 per ounce. The precious metal received additional support in early February when investors realised that Donald Trump was serious about his tariff programme.
As investors increasingly worried that gold imports into the USA might also be subject to tariffs, they imported more physical gold, causing COMEX gold inventories to more than double within six weeks. This had never happened before. The result was waiting times of more than a month for access to gold stocks in the vaults of several European storage locations, particularly at the Bank of England.
The jump above USD 3,300 per ounce coincided with rising expectations for real interest rate developments in the USA, visible in the yields of 10-year inflation-linked US Treasury bonds (TIPS). Normally, the gold price falls with rising US real interest rates, but this correlation is currently breaking down significantly. The rise in bond yields is especially notable, as it occurs against the backdrop of growing concerns about US growth. These developments suggest that Donald Trump's tariff announcements have driven up term premiums in the US bond market. These are a measure of the additional yield investors demand as compensation for increasing interest rate volatility.
Since 2022, central banks’ demand for gold has been strong, and we expect no change in the coming quarters. An additional demand driver is now gold ETFs, which are very popular with private investors. The assets managed in gold ETFs reached a new high of around USD 345 billion. Gold holdings rose to 3,445 tons, with particularly strong inflows from North America. Due to slowing growth and geopolitical tensions, we expect strong demand from private investors who are shifting capital into safe assets.
In recent weeks, the USD has depreciated while US stock and bond markets have fallen. The EUR/USD rate briefly rose above 1.15, indicating that international investors are reducing capital allocations from US markets. Gold could benefit from this trend, especially given the declining growth momentum and higher inflation in the USA.
Investors view the current valuation level of gold with scepticism; however, compared to previous bull markets, it is not exaggerated. After the Nixon Shock in 1971, the gold price rose by almost 300%, whereas currently, gold is about 120% above the level of January 2020. We see plenty of room for growth in the current bull market and expect the gold price to reach USD 4,000 per ounce next year.
