Gold Price Records Fall, With No Let Up in Sight

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Gold prices reached record highs on Friday as the spot price per ounce reached $2,794.30 and economists say the fundamentals are firmly in place for further outperformance.

"Gold prices hit a fresh all-time high early on Friday, surpassing the $2,800 level as demand for haven assets surged amid uncertainty over the impact of the new U.S. administration’s tariffs on inflation and economic growth," says Ricardo Evangelista, an analyst at ActivTrades.

Gold has recorded a month-on-month gain of $135.76 (5.17%), with the latest push coming on the eve of expected announcements by the U.S. administration that it will implement tariffs on Canada and Mexico.

The moves are anticipated to be the first in President Donald Trump's stated desire to ramp up of tariffs to boost domestic industry and realign global trade, which he says has been "very unfair" to the U.S. He is also wielding tariffs as a negotiating tool to force concessions from other countries.

"These tariffs could drive inflation higher in the US and potentially trigger a trade war, darkening the global economic outlook," says Evangelista.

Gold is often seen as a hedge against inflation, and the rise in the precious metal signals expectations for tariffs to be inflationary.

"Against this backdrop, further gains in bullion prices cannot be ruled out," says Evangelista.

Central banks continue to cut interest rates, with the European Central Bank announcing a fifth 25 basis point cut on Thursday, taking the deposit rate to 2.75%.

The rate cut comes amidst a stagnating economy; however, inflation remains above the ECB's 2.0% target, with core inflation proving particularly reluctant to fall.

Peter Schiff, Chief Economist & Global Strategist at Euro Pacific, says the ECB might have cut too far:

"The price of gold is up another 25 euros per ounce, trading at another record high. Gold is clearly warning that the ECB is too easy, and Europe will be hit with higher inflation."

High inflation and low growth signal a nascent stagflationary cycle that naturally supports gold.

"Gold tends to perform well in a stagflationary environment characterised by high inflation and low growth," says Evangelista.

Central banks themselves are hinting they are aware of this, not via their official communications (why would you admit you are getting it wrong?), but rather through their actions.

In 2024, central banks added 1,037 tonnes of gold - the second-highest annual purchase in history - following a record high of 1,082 tonnes in 2023 and analysts forecast ongoing demand in the year ahead.

"We expect central bank demand to remain solid - we forecast purchases of around 900 metric tons in 2025 - driven by diversification and de-dollarization trends," says Wayne Gordon, a Strategist at UBS.

China is a particularly potent source of demand as it looks to diversify its asset base away from foreign bond holdings.

"Strong gold demand in China was one of the key narratives in the gold market in 2024," says Hamad Hussain, an economist at Capital Economics. "Recent macroeconomic and geopolitical developments suggest that China’s gold demand will be even stronger in 2025 than we first thought."

Goldman Sachs Research expects the buying spree to persist amid concerns about U.S. financial sanctions and the growing U.S. sovereign debt burden, setting a $3,000 per ounce price prediction on gold for 2025.

"Since Russia’s invasion of Ukraine in 2022, central banks have been buying gold at a brisk pace — roughly triple the amount prior," says Goldman Sachs. "Gold is our strategists' preferred near-term long (the commodity they most expect to go up in the short term), and it’s also their preferred hedge against geopolitical and financial risks."