After an astonishing 27% increase in 2024, gold prices have risen nearly 11% so far this year. For the past 16 months, gold has been on an upward trend, increasing by 63% since the low of $1809.50 per ounce on October 23, 2023. Since Trump's re-election in November, the price of gold has accelerated, rising 16% from the low of $2536.71 per ounce on November 15.

In Tuesday's Asian trading, spot gold climbed to a historic high of $2942.70 per ounce, surpassing the previous peak of $2911.30 set on Monday, marking the eighth record since 2025.

As Trump introduces various trade tariffs and threatens to impose more, uncertainty is rising, leading investors to turn to gold as a safe-haven asset. Trump's latest tariff threats have triggered another gold rush, pushing gold, as a primary safe-haven asset, to new heights and bringing the $3000 milestone price into view.

On Sunday, Trump announced new tariffs of 25% on all steel and aluminum imported to the USA, adding that he would announce reciprocal tariffs to be applied to all countries which would match the tax rates levied on each country. Previously, Trump had already imposed a 10% tariff on imports from his largest trading partner, China, and threatened to impose a 25% tariff on all imports from Canada and Mexico, suggesting new tariffs on imported Autos, computer chips, and Pharmaceuticals.

Independent Analyst Ross Norman stated, "The gold price is clearly targeting the $3000 level, and the market is very strong. Now the only question is when it will scale up, not whether it will. People should have expected profit-taking to occur, but that has not happened, reflecting that the underlying momentum is very, very strong."

The "three legs" that support the surge in Gold.

Over the past 20 years, gold prices have primarily been driven by three factors, and when all three factors pull in the same direction, the increase in gold prices is maximized. These three driving factors are Consumer demand, Central bank purchases, and Investment inflow.

Investment inflow.

It is widely believed that tariff plans will trigger inflation in the USA and may lead to a trade war, thereby increasing the demand for safe-haven assets like Gold. Traditionally, Gold is seen as a hedge against inflation and geopolitical instability. Concerns about the import tariff plan are reflected in the Gold Futures in the USA, where the trading price of major futures contracts is currently at about a $28 premium over the spot price.

Secondly, sources indicate that after a surge in the quantity of gold being shipped to the USA, participants in the London gold market are racing to borrow gold from major central banks that store gold in London. Daniel Hynes, a senior commodity strategist at ANZ Bank, stated: "The trading price of gold in the Bank of England's vaults is below the overall market price. This has led to long queues lasting up to a week for those preparing to redeem gold."

Global gold banks are transporting gold from trading hubs such as Dubai and Hong Kong, which cater to Asian consumers, to the USA to capitalize on this unusual high premium. COMEX certified gold inventories stand at 34.6 million ounces, having increased by over 90% since the end of November, reaching the highest level since June 2022. The London Bullion Market Association also reported last Friday that due to the surge in gold being sent to the USA, the gold storage in London's vaults decreased by 1.7% month-on-month in January, amounting to 8,535 tons, valued at $771.6 billion.

Investment inflow is driven by a desire for diversified investment, but is also influenced by safe-haven funds and hedging against inflation. Since this US president has shown his unpredictability, this uncertainty could exacerbate volatility in gold this year. At this point, the uncertainty surrounding Trump's policies seems to support gold prices.

Richard Franulovich, an Analyst at Westpac Banks, pointed out that Trump's policies are unpredictable, applying tariffs on both allies and opponents, which has increased the safe-haven appeal of Gold. Trump's remarks indicate that the risks and uncertainties faced by the Global financial markets have significantly increased, thereby raising investors' demand for safe-haven assets.

Global Central Bank Demand

Analysts and traders point out that the demand from global central banks will remain strong in 2025, further driving up prices. The World Gold Council (WGC) stated in a quarterly report that major central banks purchased over 1,000 tons of Gold for the third consecutive year in 2024. This pace is more than double the annual average of 473 tons from 2010 to 2021, indicating the growing role of central banks in driving Gold demand.

The World Gold Council estimates based on reported and unreported purchase volumes concluded that in the fourth quarter of 2024, following Trump's victory in the US election, the purchase volume from major central banks increased by 54% year-on-year, reaching 333 tons. Among these, China is the largest consumer of Gold globally. Official data shows that the Chinese central bank increased its Gold Shareholding for the third consecutive month in January.

Han Tan, Chief Market Analyst at Exinity Group, stated: 'As the Chinese central bank resumed Gold purchases in January and China decided to allow insurance funds to invest in Gold, these measures seem to have strengthened the bullish momentum for Gold.'

However, given that central bank purchases are determined by policy rather than market dynamics, predicting their trajectory is difficult. That is, Trump's often unstable and contradictory policies may encourage more countries to establish financial reserves beyond US assets like US Treasury bonds, which could keep demand high in 2025.

Consumer Demand

Another factor driving gold prices is Consumer demand, which is currently less notable compared to the two major forces mentioned above. The continuously increasing tariffs in the USA and potential retaliatory measures from other countries may slow down Global economic growth, push up inflation, and tighten monetary policy. Investors' response is to buy Gold, with an Inflow into Exchange-traded Funds (ETFs). The largest Gold ETF, SPDR Gold Trust, saw its holdings jump to 27.92 million ounces on February 7, a 1.3% increase from the recent low of 27.55 million ounces on January 27.

According to data from the World Gold Council, in recent years, Consumer demand in China and India may be the most important part of the "three-legged" demand for Gold, with the combined demand from these two countries accounting for just over half of Global Consumer demand. In 2024, China's Gold Consumer demand is projected at 815.5 tons, down 10% from 2023, while India's Gold Consumer demand is expected to be 802.8 tons, an increase of 5%. The total purchase amount from these two largest buyers is 1,618.3 tons, accounting for 53% of the total Global Consumer demand.

Although China and India still dominate Consumer demand, momentum has weakened in recent years, and these two countries may be shifting from being drivers of Gold prices to providing support for demand when Gold prices fall.

Wall Street investment banks are Bullish on the future of Gold.

Institutions generally expect that, driven by trade frictions, geopolitical concerns, sustained demand from central banks, and uncertainties in Global economic growth, Gold prices will continue to rise this year.

UBS Group recently raised its 12-month Gold price forecast to $3,000 per ounce. UBS Group stated in a report, "Although we acknowledge that the current spot Gold price is above our fair value estimate, the persistent appeal of Gold as a store of value and a hedge against uncertainty has been reaffirmed."

Citigroup has also adjusted its Gold price expectations. The bank raised its 3-month Target Price for Gold to $3,000 per ounce, maintained the 6-12 month Target Price at $3,000 per ounce, and increased the 2025 average price forecast from $2,800 per ounce to $2,900 per ounce.

Goldman Sachs also set a Gold price Target Price of $3,000 per ounce. Goldman Sachs believes that the continued increase in policy uncertainty in the USA may drive a long-term rise in demand for safe havens from central banks and investors, which poses an upside risk to the Gold price Target Price of $3,000 per ounce.

Editor/danial